Owning triple net lease (NNN) properties is one of the best ways to earn a steady stream of long-term passive income through real estate. However, it is important to note that not all NNN investments are created equal. If you want something that guarantees a good return on investment (ROI), you should find a property that is leased by businesses that are always in demand, like auto body shops for lease.
So, why should you invest in these types of NNN properties? And, how do you know you are buying a property that will give you the most value for your money?
You are in the right place! In this article, we will explain why investing in NNN auto body shops is a smart decision to make and guide you in assessing your options. So, fasten your seat belts, and let’s get started!
Why Buy NNN Auto and Brake Businesses for Investment
Auto and brake businesses as lessees can provide you, as a landlord, a stable and lucrative investment opportunity with the potential for long-term profitability. One reason for this is the growing demand for auto repair services.
According to research by Statista, the auto parts industry increased revenue by around 3.34% from 2021 to 2022, generating sales of almost $1.53 trillion from advanced retail trade. The increasing number of vehicles on the road, coupled with the rising average age of cars, has resulted in a growing need for auto repair services. This trend is expected to continue, making auto body shops a stable and essential service that benefits the community.
Apart from the strong demand, there are also other good reasons to invest in NNN auto and brake businesses.
Triple Net Lease Benefits
When you buy NNN properties, most of the property’s operating expenses, including taxes, insurance, and maintenance, are transferred to the tenant. This provides you with long-term stability, as the tenant is responsible for most of the property upkeep.
These leases generate consistent passive income for the landlord, with minimal management responsibilities. Compared to other types of commercial real estate, NNN auto body shops also offer a lower-risk investment opportunity.
High Returns on Investment
With good cap rates, auto parts and repair shops can offer higher returns than other types of properties. Due to the high demand for auto supplies and repair services, these properties can generate a steady flow of income with low vacancy rates.
These businesses are often located in areas with high visibility and traffic, which can lead to increased brand exposure for the tenant and potentially higher rent rates—perks that will be passed on to you as the landlord. They also have lower maintenance costs and fewer tenant turnover issues.
Moreover, owning these properties allows you to support an essential service that benefits the community, which can provide a sense of fulfillment beyond just financial gain.
6 Essential Factors to Consider When Buying Auto Body Shops for Lease
Now that you know why buying auto body shops for lease is a wise investment to make, it is time to learn how to look for potential properties. Here are six key factors to consider when evaluating your options.
1. Tenant Creditworthiness
When assessing a potential tenant of an auto parts and brake service business, it is essential to consider their creditworthiness. You want to make sure that they are able to pay the rent on time and in full every month.
The best way to do this is by researching their background and past payment records. These pieces of information can include things, such as profitability and their payments to the current landlord. Additionally, check the tenant’s reputation in the industry. Look for reviews online or ask around for feedback from other landlords owning similar properties.
To be on the safe side, you should look for recognized and established brands in the automotive parts and services industry. It goes without saying that these companies have strong creditworthiness and a track record of success than smaller, unknown businesses.
By doing your due diligence upfront, you can reduce the risk of late payments or missed payments in the future.
While auto body shops and parts suppliers are often situated in high-traffic areas, it is still important to evaluate the property’s location before signing a lease. You want to make sure that there will be enough people passing by the store regularly. Also, check the surrounding area for any potential threats or nuisances, such as busy roads, crime rates, or construction noise that could impact your investment negatively.
It is also wise to research other similar businesses in the vicinity. Compare their prices and services with those of your tenant to ensure they offer competitive rates and are able to attract customers to their shop.
3. Cap Rate
Like buying any other type of rental property, you should always determine the cap rate of an existing property before you decide to buy it. The cap rate is a metric that helps you compare properties and assess their potential returns. It is calculated by taking out the property’s net operating income and dividing it by its purchase price.
So, for example, if you are buying an auto parts and repair shop worth $1,000,000, and its NOI is $100,000, then its cap rate would be 10%. Generally speaking, the higher the cap rate, the better return on your investment.
However, you should be extra careful when buying properties with very high cap rates, as this means they also come with high risks.
4. Condition of the Property
Things can get very busy in auto repair businesses, so it is important that the property is in good condition and meets all safety regulations. Look for any signs of damage or disrepair in the building and make sure to ask your tenant about their maintenance schedule.
It is also wise to visit the property yourself before signing the lease—this will give you a better sense of its condition and allow you to understand how well the business is being managed.
If you do not have the knack for conducting these inspections, you can always hire a professional commercial property inspector who has the experience and knowledge to help ensure that your investment is in good shape.
5. Existing Lease Term and Renewal Options
When investing in a NNN lease, you should understand the existing lease term and renewal options. A long-term lease is preferred for most investors as it provides stability and security. However, you should always check that there are reasonable rent increases every year to ensure that your returns remain profitable.
Additionally, make sure to find out what tenant improvement allowance (TIA) the tenant has been offered—if there is any. TIA allowances can help tenants with renovating or expanding their stores, which could potentially increase their rent payments in the future.
6. Your Long-Term Goals and Future Plans
Last but not least, you should always consider your long-term goals and future plans when investing in auto parts and repair shops for sale. Ask yourself if the property is a good fit for your investment portfolio and if it has the potential to provide lasting returns over time.
Remember, all investments carry risks, so make sure that you do your research thoroughly before signing anything.
Investing in auto body shops for lease can be a great way to obtain high returns with low risks. By considering these six factors, you can rest assured knowing that you have chosen the perfect NNN property to suit your needs.
The Best Auto and Brake Businesses in the US to Invest In
There are numerous auto and brake businesses out there, and evaluating each of them can be tricky and can take time. To help make this task easier for you, we have rounded up some of the best names that you can consider.
AutoZone is a notable name in the automotive aftermarket industry, with over 7,000 stores across the US and other countries. They are dedicated to providing top-notch customer service and offer a comprehensive selection of parts and products, as well as installation services.
O’Reilly Auto Parts
This company is one of the leading retailers of automotive aftermarket parts, offering a wide variety of products for cars, trucks, SUVs, trailers, and more. They have around 5,600 stores across the US and employ more than 80,000 people.
Advance Auto Parts
Established in 1932, Advance Auto Parts serves both professionals (mechanics, technicians, and installers) and DIY customers. Their reputation is backed by several accolades, such as being included in the Fortune 500 list of companies in 2003 and being named Forbes magazine’s “Best Managed Company in America” in the retail sector in 2005.
As the name suggests, this tenant specializes in brake services in over 100 locations across the country. In addition, they also offer a comprehensive selection of auto parts and maintenance services for all types of vehicles.
Take 5 Oil Change
Take 5 Oil Change is a leading provider of preventative maintenance services, such as oil changes, tire rotation, and other automotive care solutions. They have over 500 locations in 18 states. Their revolutionary drive-through services give the company an edge over competitors.
This is a chain of automotive oil change specialty shops that are scattered across the US. Currently, the company has around 2,000 franchises that are independently owned and operated. They offer a wide range of services, including oil changes, preventive maintenance, and filter replacements.
Firestone Complete Auto Care
Owned by Firestone Tire and Rubber Company (one of the oldest auto service companies in the US), Firestone Complete Auto Care has a long history of providing quality automotive services. They operate more than 1,700 locations across the country and specialize in tires, car repair, and maintenance services.
Remember that these are just seven of the many businesses that offer great auto and brake franchise opportunities. There are more out there that you can consider for your NNN lease investment.
To view a comprehensive listing of NNN auto and brake businesses, you can visit this page: https://www.buynnnproperties.com/auto-brake-businesses/.
Finding the perfect NNN auto body shops for lease that you can buy for an investment can be a daunting task. But if you take the time to do your homework, consider the factors that can affect the success of your investment, and look into all available options, you will surely find one that meets your needs and expectations.
Now, you should already have everything you need to make an informed decision and start reaping the rewards of investing in NNN auto parts and service shops today.
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