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Earning passive income through ownership of commercial real estate properties with credit tenants is a smart investment strategy for those seeking stable and reliable returns.
Here’s how you can achieve this:
Understand Credit Tenants
Credit tenants are companies or organizations with strong financial stability and high credit ratings, such as national retail chains, government agencies, or Fortune 500 companies. These tenants are more likely to honor long-term lease agreements, ensuring consistent rental income.
Invest in Triple-Net (NNN) Lease Properties
One of the most popular ways to earn passive income from credit-tenant properties is through triple-net leases (NNN leases). The tenant assumes responsibility for property taxes, insurance, and maintenance costs, in addition to paying rent. This arrangement significantly reduces your operational responsibilities as the owner, making it a truly passive investment.
Use a Delaware Statutory Trust (DST)
DSTs allow you to invest passively in commercial real estate, including properties leased to credit tenants. You buy fractional ownership in a property or a portfolio of properties managed by professional operators. DSTs provide access to institutional-grade properties that would otherwise be inaccessible to individual investors, such as retail stores or industrial facilities with credit tenants.
Focus on High-Demand Property Types
Certain types of commercial properties with credit tenants tend to perform better due to market demand For example, retail spaces leased to credit tenants such as FedEx, Starbucks or Walgreens tend to yield high performance. These credit tenants often have long-term leases ranging from 10-25 years, which provide stable income over a long period of time.
Take Advantage of Tax-Efficient Strategies
Passive income from credit-tenant properties can be tax-efficient since investors can offset rental income with depreciation expenses and can defer capital gains taxes by reinvesting the proceeds into a DST via a 1031 exchange.
Last but not least, avoid putting all your funds into a single property. Instead, diversify across multiple properties, geographic regions, and tenant types to mitigate risk and ensure steady income streams. By leveraging these strategies, you can enjoy reliable passive income streams from high-quality commercial real estate properties leased to credit tenants while minimizing your active involvement.
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