More and more savvy investors are choosing to add NNN properties to their portfolios. But, why are investors flocking to triple net investments?
Very broadly, NNN lease properties present a relatively low-risk, low-touch investment that provide consistent, dependable returns (with none of the extensive landlord duties that come along with other types of investment properties).
However, to find the best NNN investment opportunities that will bring you the full rewards and potential, you need to locate the properties with the most advantages and the best tenants.
We’ll help by exploring all the opportunities in NNN investments that are driving more investors to diversify their portfolios and upgrade their strategy with single tenant net lease properties, including: what makes an NNN property a good investment, how to find the best NNN deals and tenants, why single tenant NNN leases present the ideal investment potential, and how you can use the expertise of NNN brokers and financing to accomplish your investment goals.
Are NNN Properties Good Investments?
NNN properties are great for investors who are looking for a conservative, low-touch investment with consistent returns over a long period of time. Many investors are using NNN properties as a strategy to move away from a management-intensive investment (like apartment complexes) and add properties to their portfolio that are easy to manage and provide good income and equity opportunities over the lifetime of a lease (or however long an investor wants to use the property for equity building, which is usually two years in most cases). See our complete guide to triple net property investing
However, not all NNN properties provide the same level of opportunity. Here’s some of the factors you can consider when determining the profit potential and long-term viability of an NNN lease investment.
Population Growth Patterns
Areas with swift population growth are typically great areas for NNN investment. A booming population signals a growing area with a rising economy, and these areas with rapid growth patterns usually have the best, most profitable NNN investment opportunities. If there are exciting changes happening that are drawing people into a city or area, then you can capitalize on this momentum by choosing an property in the midst of the action and buzz. Population explosions usually drive commerce, which helps ensure the longevity of an NNN investment and long-term rewards with a successful tenant who can run a good business and pay their rent regularly into your income.
Location, Traffic, and Accessibility
The physical location of an NNN property is also very important. Ideally, you want to look for a property that is in a good location, preferably on a large corner lot that gets good traffic and is easy for people to access. This will ensure that more consumers will come to your NNN location over competing brands and help bolster the success of the tenant operating their business in the space. When your tenant is successful, your income from their rent is more secure.
NNN properties with tenants who are operating “recession-proof” businesses usually represent the best long-term opportunity for investors. Businesses that people will visit even in times of economic dips will support regular returns despite the economy. Think about places that people will always need to go, such as:
- Gas Stations
- Convenience Stores
- Dollar/Discount Stores
- Grocery Stores
- Medical Facilities
Proximal, Established Businesses
Another success indicator for NNN properties is the surrounding businesses and properties. If a location is near established businesses and brands that people flock to for shopping or dining, then you’ll benefit from the proximity to those locations.
Strong Tenant History
A tenant with established business experience and a strong credit profile is ideal for an NNN lease. While many properties will have an existing lease in place, you always want to ensure the tenant has the potential to operate their business successfully in your location. If they’re been in their lease with no issues for a long period of time, that is a good sign they’ll continue operating well and secure the success of your investment.
Let’s look at an example of an ideal NNN investment:
If you’re looking for NNN properties in Virginia, you should focus on areas with fast-growing population and upward job growth. This doesn’t always mean big cities like D.C., as often times people will begin to move to areas close to a booming city in search of better home prices, schools, etc. If you find a convenience and gas location, on a large corner lot, near successful proximal businesses in a growing area (with a long-term, reliable tenant), you’ve found a solid NNN investment opportunity.
Single Tenant NNN Leases: The Best NNN Tenants?
Net lease real estate can fall into a couple of different categories when it comes to the tenant base and occupancy of the property. The main types are single tenant NNN leases and multi-tenant NNN leases, and you’ll need to consider each type to determine – is NNN lease a good investment?
In a single tenant NNN lease, there is just one tenant who occupies the space and runs their business in the location. Typically, single tenant leases are long-term, ranging from 10-25 years. There is one lease in place, with the terms that apply specifically to the tenant renting out business space and the property owner. The lease will outline financial responsibilities of all parties, which will usually allocate taxes, insurance, and building maintenance fees to tenants. This means that the property owner will have little to no landlord duties and will not usually have substantial financial responsibilities. However, every NNN lease is unique, and sometimes a property owner will have certain obligations they must meet in the lease, often related to structural or roof maintenance and repairs.
In a multi-tenant NNN lease, there is a mix of different tenants that occupy parts of the building. These could be retailers in a shopping center, renters in office spaces, people or businesses occupying mixed use buildings, etc. In these instances, there are unique leases drawn up for each tenant in the building, which means you will need to manage multiple tenants who have different terms and lease timeframes. You’ll also be responsible for keeping the space fully occupied and may have more tenant turnover if the location isn’t ideal for a particular tenant and they decide to vacate when their lease comes to term.
At Sands Investment Group, we’re seeing single tenant net lease properties rise in popularity among investors who want to diversify their portfolio without taking on a lot of risk and responsibility in their investment. Single tenant NNN lease properties are more simplistic in nature since you’re only dealing with one tenant, and usually over an extended time period.
Single Tenant Net Lease Valuation Model
When considering single tenant NNN properties for sale, it’s very important to understand the tenant lease in place and go through all the terms thoroughly so you know exactly what your investment is likely to return each year (and how involved you’ll need to be as the property owner).
Is single tenant NNN lease a good investment for you?
You can determine the short and long-term potential in an NNN lease investment by using the single tenant net lease valuation model.
The formula is: NOI/Cap Rate = Single Tenant Net Lease Property Value
Let’s look at an example:
Expected NOI: $200,000 in annual tenant rent payments
Cap Rate calculated at: 6.20%
You can estimate your NNN property value using this equation:
NOI ($200,000)/0.062 = $3,225,806 Valuation
This formula can help you estimate the valuation and opportunity in a single tenant NNN property, but it is important that you remember that there are other things that can alter the value of a property, especially in the long-term. You should pay close attention to the state of the market where you’re looking to invest as this can impact your NOI and alter the predicted potential in your investment.
NNN Lease Financing and NNN Brokers: Your Secret Weapon for Finding the Best Tenants and Deals
Financing options are available for NNN properties, and most investors do need some type of financial help when making a large purchase of a commercial property. Working with a net lease real estate expert like Sands Investment Group is the best way to learn about the financing options available.
A net lease advisor can help you evaluate the market, choose the best NNN property, and also help you obtain the right kind of funding you’ll need to stay profitable in your investment, both short and long term. When you’re considering an NNN lease investment, strategy is key to your success, and can often be even more important than just the financing of an NNN property.
Sands Investment Group has extensive experience single tenant NNN lease properties, and we can help you navigate the market to make the most of your investment. Our client-focused approach, extensive connections, and marketing expertise are just a few of the ways we’re leading the industry. In fact, we’re 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.
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.