Investing in triple net (NNN) properties offers plenty of benefits, such as stable income and hands-off involvement. Beyond the obvious advantages of this lease structure, however, you can also enjoy benefits from the specific type of NNN property you acquire.
In this article, Realized 1031 takes a look at NNN medical properties, which have distinct benefits that you may not encounter with other asset classes. Keep reading to learn more!
NNN leases, by nature, are designed to be long-term commitments. However, tenants can still leave due to a wide variety of reasons. Medical and healthcare providers are, thankfully, less likely to leave early and can fully commit to 10 to 20 years or more in a lease agreement. There are various reasons for this longevity, such as the following:
With these factors in mind, investors can be more confident that the healthcare company will commit to a decades-long lease, ensuring long-term cash flow.
Another unique feature of the healthcare industry is that it’s an essential service. Compared to hospitality establishments, retail, and other sectors, medical services should see more demand. Thanks to this characteristic, NNN medical properties are typically inflation-resistant. While others may see reduced demand due to the lower purchasing power of their client base, hospitals or clinics should maintain a steady stream of patients. This results in consistent income for the company, allowing it to keep up with rising costs of goods and services and minimizing the chances of tenant default for investors.
As we mentioned above, medical operations require specialized buildouts in the NNN property. These include surgical suites, imaging rooms, and laboratory spaces. These improvements require substantial investments from the tenant, increasing their commitment to the NNN property. This vested interest acts like a barrier to exit, decreasing the chances of a sudden vacancy.
Many healthcare NNN tenants are part of large, nationally recognized providers such as hospital systems, urgent care networks, or pharmacy chains. These organizations tend to carry strong credit ratings, further lowering any investment risk. There’s a decreased chance of tenant default, and even in inflationary environments, the company will likely have strategies and resources to keep up with the growing costs of goods and services.
Even smaller private practices enjoy the inherent “stickiness” of their patient base. This means that there’s a consistent revenue stream for the company and steady cash flow to the landlord.
Medical and healthcare properties, despite their numerous strengths, can still face challenges that investors must consider. Regulatory changes and shifting market conditions are two prominent aspects to consider.
NNN lease investments in the medical industry offer a lot of promise. The industry’s resistance to inflation, the difficult exit for tenants, and healthcare being an essential service make these properties stable for long-term success. While regulatory and demographic considerations require careful evaluation, the unique aspects of healthcare properties make them a valuable niche within the NNN investment landscape.
Sources:
https://www.investopedia.com/terms/t/triple-net-lease-nnn.asp
https://researchfdi.com/5-recession-proof-target-sectors-for-investment-attraction/