27 March Single-Tenant vs. Multi-Tenant Properties: Using Your Goals to Influence Your Investments March 27, 2024 By Melisa Rana Property Investment, Property Management business tips, commercial real estate tenants 0 SINGLE-TENANT VS. MULTI-TENANT PROPERTIES: USING YOUR GOALS TO INFLUENCE YOUR INVESTMENTS March 27, 2024 | Property Investment, Property Management | business tips, commercial real estate tenants As property inspectors, we have significant experience in navigating the wider real estate industry and getting to know the needs of real estate agents, homeowners, brokers, and property investors. People in all roles can see success with real estate investments, but to find the best investment strategy, it’s crucial to first identify just what kind of property owner you plan on being, especially when it comes to your long-term goals. While there are many different classes of commercial real estate that property owners tend to specialize in, the first major factor that new investors need to consider is whether they want to target single-tenant or multi-tenant properties. Both varieties offer their own strengths and weaknesses, but to determine which type is best for your situation, start by deciding how “hands-on” you’d like to be. The “Hands-On” Factor Single-tenant properties tend to utilize a unique type of lease contract known as NNN or Triple-Net leases, which gives property management and maintenance responsibility to the tenant. Although some lease agreements still require action from landlords, these triple-net leases mean that single-tenant property ownership is extremely hands-off, allowing landlords plenty of freedom to pursue other business interests but a low level of control on these properties. Conversely, multi-tenant properties require attention to maintenance, relationships with contractors and service providers, and consistent availability to address emergencies. In other words, multi-tenant properties demand more from property owners, but allow for much more control. Additionally, multi-tenant properties require property owners to negotiate lease turns with more than one tenant which are, on average, shorter than their single-tenant counterparts. At first glance, multi-tenant property ownership may sound like a hassle for little benefit, but many owners and investors appreciate the shorter lease terms as they gain more opportunities to negotiate and react to market changes. In addition, more tenant renewals mean more opportunities to search for higher quality lessees and maybe more chances to reflect whether an underperforming tenant is a good fit. Considering Tenant Dependency Multi-tenant property owners can get by with one or two vacancies while they search for a new tenant that synergizes well with other existing businesses and assets in the area. Single-tenant properties, on the other hand, are much more impacted by vacancies with an all-or-nothing revenue coming in from rent. In the same way that financial advisors like Grace Rogers of CRM Properties recommend diversification among asset classes, there are many advantages that come with varying assets within the same property. Apartment complexes may draw in more tenants if they also have a coffee shop on the ground floor, and office spaces may be more desirable when paired with a gym or grocer. With the right configuration, property owners can use tenants and built-in amenities that bolster value. Return on Investment Potential In the end, both single-tenant and multi-tenant properties can be great investments, but they are generally prioritized differently based on the property owner’s goals. Single-tenant properties are mostly thought to be low risk, consistent income sources that are hands-off, but offer limited room for growth. The longer single-tenant property leases further adds to their reputation of consistency and predictability. These types of properties are great for investors who have a larger existing profile and don’t necessarily want to add a high-need location, but are still looking to expand. Multi-tenant, on the other hand, might be best for investors or property owners who are interested in CRE management and maintenance as their day job. Though there are more responsibilities that come with multi-tenant property ownership, there’s also more room for growth. Regardless of asset class or tenant makeup, it’s important for property owners and investors to consider their goals to get the most value from their efforts! Our inspectors are trained to give comprehensive property assessments for any scope of work. With every purchase, be sure to contact National Property Inspections for all your commercial property inspection needs! Comments are closed.