For a range of reasons, triple-net assets are some of the most appealing investments you can make in real estate. Dipping your feet in NNN properties frees you of landlord obligations, assures you of long-term cash flow, and minimizes your operational risks.
Suppose you just heard of this form of commercial real estate investing, and are interested in knowing how it works. In that case, this article is a must-read. We will explain everything you need to know about triple net investment down to the tiniest bit of detail you’d need to keep up with if you plan on adding triple net properties to your portfolio.
First, What is a Triple Net Lease?
Triple net leases are a form of commercial real estate leases where the renter is responsible for extra rental expenditures associated with managing the property, such as common space upkeep, state taxes, and property insurance.
“Triple net” stems from the supplemental expenditures usually paid to the landlord monthly alongside the base rent.
Most triple net leased properties for sale are usually acquired by retail franchises (Walmart readily comes to mind), but they are also getting pretty widespread in industrial sites. There are numerous types of net leases, each of which imposes a different amount of obligation on the renter for maintenance expenditures.
Pros of a Triple Net Lease
Take it from us, there are a plethora of benefits to enjoy as a landlord if you decide to sell a triple net lease. We’ve discussed the more significant ones below.
Take your time in reviewing them to get a clearer picture of what to expect from this lease structure. Ultimately, if you feel the pros outweigh the cons, you might want to take a pick of the litter from the list of triple net properties for sale at NNN Deal Finder.
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Long-term Leases, Long-term Income
NNN leases are comparable to commercial real estate leases in that they extend much longer than domestic leases. While most commercial real estate leases rarely extend beyond a maximum of half a decade, NNN leases, on the other hand, can run up to 25 years or more.
As you’d expect, landlords get to benefit greatly as they don’t have to keep looking for tenants every year.
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Little to No Responsibilities
With a triple net lease, the landlord’s degree of obligation is generally quite low as most of the expenses attached to maintaining the property are passed down to the renter.
In most circumstances, renters are charged for property taxes and insurance, development, or capital expenditure required to make the building functional for them, as well as any specific expenses required to maintain the building(s) operations.
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Transferable Leases
Finally, NNN leases are often transferable, which means you may trade your stake (or part of it) in the property even if there is a leasing contract and the building is currently occupied.
This is a major benefit for you, the landowner, because it guarantees that you get to go on with your investment plans whenever it feels right for you, rather than having to worry about timing a transfer when the contract expires.
Cons of a Triple Net Lease
Although there are notable advantages to leasing out NNN properties, there are some serious drawbacks to equally keep in mind. The next time you go on to inspect triple net properties for sale, remember these before flinging out your checkbook and making a down payment on any.
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Earning Limits
Rates on triple net leases are often cheaper than those on the single net or double net leases since most of the expenses of managing the facility are passed to the renter. As a result, there is a limit to how much money you stand to make.
Furthermore, though you get to enjoy a steady flow of revenue from these rentals, keep in mind that your earning rate may not match market rates even if your tenant agrees to a set increment for inflation.
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Finding a Renter Might be Difficult
As you might guess, finding a renter for this form of contract may be difficult, particularly if you’re proposing an unconditional lease. Tenants don’t like to take on the contractual liabilities that come with these rentals.
Who Should Consider Purchasing Triple Net Lease Properties?
Do you wish to invest in Miami Apartments and such to vary your portfolio as you plan to retire? Perhaps you’d like to make an advanced directive so that your children or grandkids will have a steady source of income in the future.
Whichever the case may be, if a consistent, growth-based, passive monthly revenue with little to no asset responsibilities and extremely minimal risk appeals to you, NNN leases may be the right investment for you.
NNN Investors’ Financial Requirements
Like you find with most investment types, who get to acquire some of those NNN investments for sale is mostly a question of who is more financially capable. We review some of the important considerations below:
- An intending triple net investor should have a net value no less than $1 million (excluding the value of their principal property) and/or earn a minimum of $200,000 per year, according to the usual norm
- A yearly income is often not required if you intend to pay all cash for a triple net property
- An initial deposit of 30 to 40 percent on the property is also required
What Is the Best Way to Invest in Triple Net Properties?
Before purchasing some of any triple net properties for sale, there are a few things to keep in mind, such as:
1. Figure Out What Kind of Equity Returns You Want
Depending on the renter, location, remaining lease term, homeowner obligations, year of building projects, and other factors, NNN lease investments can and will yield a broad range of earnings.
As a result, two ventures with the same renter and guarantor might have drastically different valuations. As an investor, figure out what type of return fits best for business, and then commit to it.
2. Contact a Lease Consultant
After you gain a broad understanding of what you’re looking for, start talking to triple net leasing advisers to determine who would be the greatest fit for you and your business.
An NNN lease consultant is a property investment dealer with niched-down expertise in investing in NNN properties. One such consultant we would recommend anytime is PropertyEscape, a company that buys houses in San Fernando Valley, California. They can equally assist you in finding the right asset, performing thorough research, and setting you up to succeed.
When evaluating candidates, inquire about the consultant’s overall experience with these kinds of assets. Commercial brokers are unlikely to have prior expertise in this industry while household realtors are almost definitely not.
3. Locate a Suitable Credit Partner
Since most NNN commercial real estate for sale tend to accept cash-only bargains, it’s a good idea to start talking to lenders as early as possible to assess how your loan rates will wind up.
Suppose you discover similar opportunities outside California, you’ll need a creditor to go with you. If your bank is willing, your financial service officer might be a good choice, or you could use a mortgage lender to get such bargains for you.
Knowing those loan conditions upfront can help you underwrite deals more rapidly when you find a property that matches your criteria.
4. Assess Prospects and Make a Proposal
Keeping a Cloud file storage version of the properties you’re assessing as soon as you’ve begun receiving prospective investment possibilities is a great hack.
It’s nearly impossible to individually monitor each property, particularly as you won’t be seeing them physically. As such, having everything in one spot where you can easily examine them anytime you’re considering a venture is helpful.
Consider making a spreadsheet that weighs the many positives and downsides whenever you’re taking on a new investment. Then have your brokerage or financial consultant prepare a letter of intent to buy upon deciding on a suitable property.
5. Conduct a Thorough Investigation on the Property and the Lessee
Since you most likely won’t be physically present, you’ll want to hire a local assessor to check the property and submit a report for your consideration.
The preexisting contract is the next and perhaps the most significant item to go through. Considering there’s way too much to lose on these investment types, a nice hack would be to forward the lease contracts and other paperwork to your attorneys for them to equally go through.
Final Thoughts
Regardless of what forms of analyses you’ve had, whether or not to invest in NNN leases is ultimately a question for private deliberation. If you’re not much miffed by the possibility that it could take up to several months, even years, before hooking up a new tenant, then triple net leases are just the perfect fits for you, take it from us.
However, greater profits for equally greater responsibilities, more of your sort of thing? Best you look elsewhere. Ultimately, there is no one-size-fits-all solution. The most important thing is that you select an investment plan that best aligns with your preferences.
