Triple net lease real estate is popular for investors who want to add a low-risk, low-touch property that brings in consistent revenue each month over a long-term period. In a triple net (or NNN) lease, 3 important financial responsibilities (each represented by “N”) are typically included and outlined it the contract:
- Insurance Premiums
- Maintenance, Repairs and Upkeep
But each deal is as unique as the property itself, so it’s important to know these three aspects of NNN expenses (from the standpoint of an investor and a tenant) to make sure you choose the best investment for your portfolio.
1. The Majority of NNN Expenses Typically Fall Under Tenant Responsibility
In a triple net lease, the tenant will assume responsibility for every aspect of the property that is outlined in the deal. They will pay annual taxes, fund repairs or upgrades to keep the building in good working order for their business, and cover insurance premiums and claims as required. All of these things can be built into their business expenses and considered costs of doing business.
While NNN leases are very beneficial to investors, they also offer tenants an array of advantages as well, including:
- Established Business Location
- Long-Lasting Footprint
- Good Traffic and Proximal Anchor Tenants
To secure a triple net lease, a tenant must have an exceptional credit profile and a proven track record of success in the industry. Tenants are vetted beforehand to help minimize risk and ensure that the tenant is prepared to enter a long-term agreement such as an NNN lease.
2. Property Owners Can Greatly Benefit From an NNN Lease (But May Also Be Responsible For a Portion of NNN Expenses)
When purchasing a triple net property, an investor will typically finance all or a portion of the cost of the building, and then use rental payments to pay off the financed portion (all while keeping a monthly income stream coming in through the excess of the rent charged versus their monthly payment on the property). However, depending on the details negotiated in the NNN lease, a property owner may be at least partially responsible for some of the expenses, such as structural repairs, insurance, or utilities.
By passing on some or all of the operating expenses and taxes to the renter, property owners can reduce the impact of market fluctuations and hikes in taxes that can occur over the term of the lease. Triple net leases also offer property owners some other key advantages, like:
- Long-Term, Trusted Tenants Who Are Invested in Success
- Little to No Management, Oversight, “Triple Net Landlord Duties” or Property Expenses
- Investment Stability
- Equity Building
- Asset Flexibility
Often times, investors will hang on to a triple net property and use it as an equity builder for at least 5 years, and then sell the property when the market peaks, population spikes, or when they’re ready to use that equity in their next investment.
3. NNN Expenses in a Triple Net Lease Are Unique to Each Property
One constant in triple net real estate is that each NNN lease is unique. Frequently, when an investor comes in on a triple net property, there is already a tenant agreement in place which outlines all the specifics of the deal, complete with clauses that outline exact financial responsibilities of both the tenant and the property owner. By purchasing a property with an existing triple net lease in place, you inherit the terms of that deal as they’re outlined.
This means that you should pay very close attention to every detail of the existing lease before deciding to purchase the property, so that you know ahead of time if you will be responsible for any insurance premiums or major structural repair costs (which are often distributed between landlord and tenant or are the responsibility of the property owner).
Sands Investment Group is the fastest growing net lease investment company in America, with over 1,900 transactions in 48 states (to the tune of $4.5 Billion) since 2010. Our company is comprised of distinguished experts in the space who fully understand the advantages of net lease real estate, and can advise you on how your net lease deals should be structured (as well as help you navigate existing net leases on properties you may have an interest in). Our client-focused approach, extensive connections, and marketing expertise are just a few of the ways we’re leading the net lease industry.
Want to learn more? Get in touch with an expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.