To answer this question, it is important for an investor to consider the following aspects:

1. administrative ownership:

• For single-tenant properties, the owner’s responsibilities are minimal to none. All you have to do is take your rent check and deposit it into your bank account. Sometimes the tenant can pay the rent by transferring it to the tenant’s bank account; therefore making this a truly passive investment. If he’s really busy with his career and/or wants to keep few responsibilities as an owner, this is an investment opportunity worth considering.
• For multi-tenant properties, even when there is a local property manager, you must be involved in various decisions about who to rent to and various maintenance issues. Every month you have to review the management report.

two. Risks:

• For single-tenant properties, your investment risk is essentially “putting all your eggs in one basket.” If the tenant does not renew the lease, the tenant could lose 100% of the rental income. There could be a possible depreciation in value if the rent is fixed for 20 to 25 years. When the lease has a few years remaining, you will need to increase the capitalization rate to sell. For example, a Walgreens with a new 25-year lease offers a 6% cap. However, when 9 years remain on the lease, the cap is 7.5% or 20% depreciation.
• For multi-tenant properties, the risk involved is minimal. If a tenant does not renew the lease, you lose only part of the total income and still have money from the other tenants to pay the mortgage.

And so, for multi-tenant properties, you’re likely to have minor issues. For single-tenant properties, one problem can potentially translate to a big one, as noted above.

3. Lease Terms:

• For single-tenant properties, the lease is typically long-term, for example 10 to 25 years. It is normally an absolute NNN lease for the most desirable location and NN otherwise. Rent is fixed for strong S&P rated domestic tenants eg Walgreens for 20-25 year primary term and options. For lower S&P rated domestic tenants, eg O’Reilly, Family Dollar, rent is fixed during 10-15 year prime term) and modest 5-10% rent increases during 5-10 options. 10 years. For franchisee or mom and pop leases, rent increases of 5% to 10% for every 5 years are typical.
• For multi-tenant properties, the lease is typically 1-5 years. NNN if the location is desirable, gross lease or NN or even gross otherwise. Leases often have 1% to 3% annual rent increases, or 5% to 10% increases during options for more desirable locations. Rent could be fixed for less desirable locations.

Four. Leasing guarantee:

• For single tenant properties, the lease may be guaranteed by corporations, eg Walgreens, Rite Aid. The quality of the collateral depends on the S&P ratings of the corporation. As a general rule of thumb, the stronger the S&P rating, the lower the capitalization rate. For example, the DaVita lease might be under DST Renal, one of several dozen wholly owned subsidiaries of DaVita. While this guarantee is not as strong as Walgreens, its business stability is probably stronger than Walgreens. When someone needs dialysis services, they have to go there for serious medical consequences. Therefore, greater trade stability could compensate for weaker collateral. The lease could be under a single entity LLC, which is not as desirable as a single entity does not have many assets compared to the parent company. Many CVS pharmacy leases are structured this way.
• For multi-tenant properties, leases have various guarantees, from family members to corporations. Attractive locations tend to attract better brand name tenants and therefore better warranties. Similarly, less attractive locations have to make do with less desirable family tenants with weaker warranties.

5. Re-tenant facility:

• For single-tenant properties, you must find a tenant in the same line of business. The properties tend to be special purpose properties with specific business requirements, for example banks or restaurants. It’s not easy turning an old Bank of America with a bank vault into a Burger King with a commercial kitchen. And then it is more difficult to find a replacement. Because of this, investors tend to shy away from single-tenant properties with a few years left on the lease.
• For multi-tenant properties, it’s easier to find tenants, especially for smaller units.

In short, single-tenant and multi-tenant properties are excellent investments. Keeping in mind the above aspects that are involved in any of the investments, one just needs to understand the pros and cons and choose the property that best suits their portfolio/investment strategy.