Why leases matter to investors
Most investors will never own real estate investment property directly, let alone act as their own property manager or deal with leases on the regular. However, investors should understand leases, even if they don’t invest in real estate stocks. Why? Because leases affect literally every kind of business and show up on financial statements. Knowing what they can mean for your favorite company helps you better understand the bigger picture.
For example, even if you’re interested in manufacturing, it’s important to understand what kind of lease your company has for its buildings. Do they own them all outright? It’s unlikely, but possible. Do they lease some buildings for additional storage and logistics? What kinds of leases are those? Are they inexpensive single-net leases or far more costly triple-net leases?
On the other hand, if you’re investing in real estate investment trusts, leases are going to be your bread and butter. Does your industrial REIT favor triple-net leases and have low property-related overhead, or is it holding the bag on a bunch of legacy single-net leases that continue to cost extra to service? Will it be converting those to more cost-efficient triple-net leases when they expire? It pays to know.