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3 Types of Net Leased Investments: Fee Simple, Ground Lease, and Leasehold

I’m Will Beaubien of Beaubien Investment Group. I want to share with more information on Net Lease Investments.

There are 3 property categories in Net Lease Investing. There’s Fee Simple, Ground Leases and Leaseholds. What are the differences? Well you’re probably pretty familiar with Fee Simple, which is how most people own their homes. This is the highest form of ownership in real estate. This allows you to do is anything you want on that property except for zoning. We also want those for long-term tenants, because you own the property in Fee Simple, you could sign a long-term lease with a credit tenant. Walgreens is going to pay you rent for 50 years on that property you have a contract.

Ground leases are a little bit different and that is where you own just the ground, It’s pretty straight forward there. So you own the dirt and what happens there is you collect rent from somebody like McDonalds for example. They are going to pay you a few thousand dollars a month for the right to use the dirt. They own the property, they own the building, and usually they own the building. If they don’t own the building that is called a lease hold interest.

So there are really 3 (three) different types of leases; one you own the property and the dirt, two you own the dirt and the tenants own the property and the building, and three you own just the building. There are pros and cons to all of these, with the ground lease in some ways that is the greatest way to go. You have nothing to worry about you don’t own the building, no structure. You’re just collecting rent for dirt every month. The problem is, this is one of the disadvantages you don’t get depreciation. Depreciation is pretty important to real estate investing. This is something you want to talk to your tax advisor about if depreciation is important to you.

Leasehold investments aren’t common, usually the tenants owns the building. But if the tenant doesn’t own the building the problem with leasehold investments are you need to make your money in the remaining period of that lease. If you don’t then that property reverts back to the ground lease owner. You are left with nothing, so if you don’t make enough money in the remaining term. Let’s say you have 8 years left on the leasehold. I wouldn’t buy that property. But if you have a 50 year or 99 year leasehold investment, that might be worth taking to look at. The reality is we don’t deal with this much. Fee Simple is the way to go. I love the word simple because that is really what we are talking about here. It’s simple investments where you are getting your time back, increasing your cash flow and you’re enjoying life.

If you want to learn more Beaubien Investment Group is here to help. Will Beaubien reviews all net leased investments so that there are no complaints. Visit www.beaubien.com. Or call Will Beaubien at 415–840–2769.