How I Became An Expert on Investments

The Advantages of Getting Investment Grade Tenants

If you own a property and offer it for rent, then you should consider seeking investment grade tenants. Investment grade tenants provide landlords with several financing choices.

Investment grade tenants get to receive an investment grade rating from any rating agency, and they are usually big, reputable companies. Rather than focusing on the landlord’s credit or the value of the real estate when lenders provide financial assistance, they now make sure that it is based on the credit tenant renting the property as well as the value of his or her lease payments in the succeeding months.

So, what is investment grade rating?

With investment grade ratings, credit tenant lenders will be able to determine if the tenant can get loans and sell them to other investors. Getting a minimum rating of BBB- is what investment grade is all about. The majority of investors only choose to invest in products and bonds that are being back up by tenants with investment grade such as Home Depot and Walgreens. The industry of credit tenant financing also includes the participation of sates and cities.

So, what should you know about credit tenant loans?
With the aid of a credit tenant, any landlord can now refinance or purchase a property by being eligible in processing long-term loans. Such loans can follow a non-recourse structure for the sake of the landlord. This simply means that there is no risk of personal liability because this kind of loan greatly depends on the value of the lease.

How do you transact sale leasebacks?
Direct financing is made possible on the part of the credit tenants if they get themselves involved in sale leaseback transactions. Owners of properties who have an investment grade rating can put their real estate property in the market for investors, and can then lease them again. Opposite with the typical commercial real estate kind of loan, any property owner can increase their cash by obtaining a higher loan-to-value amount in favorable terms.

Some credit tenant lease terms you should know about

Just because institutional investors offer credit tenant financing, this does not automatically mean that they also take on the responsibilities often imposed when one is a landlord. Typically, credit tenant leases comprise three net terms. This simply means that credit tenants should shoulder whatever insurance, maintenance costs, and taxes they must pay. The loan terms should be based upon the entire lease duration. All of these obligations greatly rely upon the tenant, meaning this burden is no longer a responsibility of the landlord. On the part of both the investor and the landlord, credit tenant lease terms have the same function as that of a corporate bond. This means that all they have to do during the real estate project duration is collect checks as well as not actively get themselves involved.

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