Why the Asset Class is just as important as Tenant Selection
when purchasing a Triple Net Investment
When an investor drives down any major street in the US, he or she notices the vast selection of triple net investment property such as fast food, casual dining, retail chains, gas stations, auto parts and drug stores to choose from. But what most investors do not consider when deciding to purchase their next triple net property is that there must be a diversification factor of the asset class that these entities are in.
What do I mean by Asset Class?
The variety of triple net investments representing fast food, retail, gas, financial, drugstores, big box retail is endless. If you want to protect yourself from most negative economic conditions, you must diversify and purchase unrelated triple net leases in various sectors. If you already own a fast food, try a bank property next. If you own a bank triple net lease, go after a drugstore, like a Walgreens. The sectors are diverse and would protect you against poor economic conditions such as high gas prices which are negatively reflecting high end retail and casual dining, while discount retailers and fast foods are thriving. Financial institutions are suffering under sub-prime financial crisis while the dollar stores in small towns are doing fine in the same economic climate.
Not loading up on any one sector
This will most likely allow you to sleep at night knowing full well that you did your best to protect your assets which will balance out your portfolio. Several examples of asset diversification of triple net investments are below:
- Walgreens and Burger King
- Bank ground lease and Family Dollar
- Advance Auto Parts and Best Buy
- Applebee’s and Jiffy Lube
- Post Office and Verizon Wireless
As Peter Lynch used to preach in the stock market, diversify and hold for at least ten years in quality stocks and you can’t go wrong. The same thing holds true in triple net investments, hold long term, gain the appreciation and diversify into different asset groups and tenants to balance your returns.