Professional athletes are under immense pressure to perform at a high level on the field, but the burdens don’t end there. There are also social pressures that motivate them to spend a substantial amount of money on cars, houses, and entertainment. This, as you probably know, can and does lead to financial devastation.
There’s no singular answer to addressing these (arguably) systemic failures, but sufficient financial literacy and a decrease in social pressure would be a good start. The goal being a very comfortable and sustainable lifestyle after they leave the sport.
Athletes can build generational wealth.
Some athletes are well-known business investors. I’m looking at you Shaquille O’Neal. And others made the smart decision to live exclusively off of endorsement income. Hi Gronk! But the common thread among financially successful retired athletes is smart and prudent financial management designed to preserve and build wealth in perpetuity.
One investment that can help accomplish this end, and has gone largely unrecognized by athletes, is the commercial net lease property. This is in part because it’s a niche area of commercial real estate, and in part because it lacks splashy returns.
What is a net lease?
A traditional commercial real estate investment requires the tenant to pay rent, and the landlord/investor to take care of pretty much everything else. This can put a substantial burden on the landlord.
Triple net leases (also called NNN or net leases) are different. Here, the tenant pays rent plus the three “nets” – taxes, insurance, and maintenance – which typically means far fewer landlord responsibilities.
Think of it this way. An investor owns the asset, and Starbucks or the like leases the asset from the investor. Per the lease, Starbucks takes care of paying taxes, insurance, and maintenance.
The result is a high-credit tenant and limited landlord responsibilities. Even better, for a relatively small amount of money, investors can hire a management company to make ownership almost completely passive.
Of course, nothing can eliminate every burden, but this structure is certainly moving ownership ever closer to the Platonic Ideal.
Why should athletes consider investing in net lease properties?
The short answer is that net lease commercial real estate is reasonably passive and stable, appeals to high credit tenants such as Starbucks and CVS, creates ownership in a tangible asset, and is cash generating.
As a general rule, investment risk determines rate of return, and net lease commercial real estate is no different. Depending on these factors, an investor should expect a return of between 4% and 7%. That puts top end yearly cash flow at $70,000 per $1,000,000, and $40,000 at the low end.
There are no doubt athletes and advisors saying “that’s too low” without addressing the risk profile of higher yield investments. We urge a holistic investment analysis. There is no free lunch as they say.
A solid net lease investment could provide a corporate tenant, a commercial building in a prime location, consistent cash flow, and limited landlord responsibilities.
That’s something worth considering as part of an athlete’s portfolio. Or maybe even yours.