A modified gross lease can be best understood through comparison, as it represents a middle ground between a full-service gross lease and a triple net (NNN) lease.
In a gross lease, the property owner is financially responsible for the building, and covers all the expenses associated to its operation (including taxes, insurance, and maintenance). To help recoup some of these costs, the property owner builds them into the monthly rent amount that a tenant pays for use of the building. The property owner pays all of the expenses associated to the building, in exchange for a monthly, all-inclusive rent sum.
There are many vital aspects to successfully navigating commercial real estate listings and finding the best fit for your investment strategies. Aside from price and cap rates, a key factor to consider is the type of lease that may already be in place on a property (which you’ll inherit as the new property owner). Lease types vary, and the unique details within each deal can also be very different from one property to another. Read more
A triple net lease (or NNN lease) property is a special type of investment property that typically comes with a long-standing tenant agreement in place with terms that are favorable for both investors and tenants in the long-term.
Net lease capitalization rate (which is popularly shortened to simply, net lease cap rate) is a calculation used to measure the expected investment return on a net lease property investment. Cap rate is expressed as a percentage and is used to demonstrate how much of a return that an investor can expect on a net lease property, specifically over the first year of ownership.
As an investor you’re keen on finding the best investment, and to find that perfect deal you need to locate a property whose price fits into your goals. NNN for sale by owner listings can be tempting when you’re looking for a high return investment, and in some aspects of real estate can be great deals without all the fees that come along with working with a realty or investment advisory. If you’re dealing in cash, you can often get prices even lower and close faster dealing directly with an owner.
However, when it comes to triple net properties, the market and the variance in the lease deals in place on a property can present some unique intricacies that are hard to navigate (or easier to miss) when working the for sale by owner route.
Triple net lease real estate is popular among commercial investors who are looking for properties that are relatively low-risk but offer high returns without a substantial amount of management or oversight as a landlord.
Single tenant net lease properties can be ideal investors with these investment qualifications, because you’re dealing with one property, one long-term tenant (of anywhere from 10 to 25 years depending on the lease) and one set of agreement stipulations between you and the tenant. Multi-tenant net leases, however, tend to more complex since you’ll be dealing with multiple tenants who will potentially all have different terms (and timeframes) outlined in their leases.
The Capitalization Rate (or Cap Rate) is a term used heavily in the triple net lease real estate industry, and this calculation (expressed as a percentage) demonstrates the expected rate of return on a real estate investment. Cap rates are determined based on the net income a property is anticipated to generate and give investors an idea of how lucrative a triple net investment is compared to others on the market.
Net lease real estate offers great benefits for investors and tenants alike, and as you’re researching your commercial investment opportunities, you’re probably coming across a lot of different net lease types that you may have thought were all virtually the same, but the truth is that the type of net lease in place on an investment property actually plays a big role in what types of returns you can expect and what financial obligations you’ll have as the property owner.
Triple net properties are quite attractive to investors who want a steady, predictable income stream (that is also low-risk, low-touch, and long-term). This is because, in general, the vast majority of the financial responsibilities hinged to the building itself are passed along to the tenant in an NNN lease.
Single tenant net lease properties are freestanding business locations that have just one tenant occupying the entire space. In contrast, multi-tenant properties (such as strip malls or shopping centers) have multiple spaces that are all occupied by different businesses. Single net leases are becoming a more a popular investment choice as the popularity of malls dwindles and due to the many perks they offer for an investor (and a tenant who gets to be the sole business and brand operating in the building).
Market shifts and changes can have a drastic impact on your triple net property investments. From what types of buildings and businesses will be most stable and lucrative, to when and where to buy an NNN building for your portfolio, you should keep a keen eye on the market trends that are unfolding.
There are some big things underway in the realm of single tenant net leases, but trends can often be difficult to navigate as you try to determine which will be fleeting and which could have longer-lasting impacts on your NNN investments.
Triple net lease real estate can a very stable, long-term source of reliable income with many advantages for both property owners and tenants. However, it can also often be an overwhelming task to find the perfect triple net property and determine the best opportunity among a sea of choices. Additionally, net lease properties can come with a tenant already in place, which means there will be contract details that you need to understand fully so you know exactly what financial responsibilities you’re signing up for by purchasing the property and entering the existing net lease agreement with the tenant.
Triple net lease properties are rich in opportunity for both property owners and tenants alike. As an investor, you can create a reliable income stream from your property, and as a tenant you can establish a footprint for your business.
However, there are going to be expenses associated to maintaining your triple net property, from standard operating expenses to structural repairs to keep the building updated, safe, and profitable.
Insuring your triple net lease property is an important component of protecting your investment. While insurance is a known necessity for any type of property, there are some added complexities to commercial buildings that you need to understand so you can properly negotiate your tenant contracts and avoid the profit-stealing scenario of learning you’re not covered for something that’s happened to or on your property, only after the fact.
Commercial real estate contracts typically include detailed lease escalation clauses and rates that outline how and when increases to rent or operating costs will occur (and how both the property owner and the tenant are impacted as a result).
While the presence of lease escalations is very common in commercial agreements, there are many variables to how each escalation will work and what types of rate increases, or reductions will apply. It’s important to understand the different types of lease escalations and know exactly what each will ultimately mean for the profitability of your investment in the short- and long-term because some escalations take place annually, while others are every couple of years or at the beginning of a new lease term.
As an investor interested in commercial property for lease, you probably already understand some of the types of commercial lease opportunities available to you on existing buildings, such as triple net (NNN) leases and absolute NNN leases. However, there is another route you can consider when scoping out absolute NNN properties for sale, which can be more advantageous for conservative, long-term return investments: an absolute NNN ground lease.
The kind of tenant agreement in place on a commercial property for lease is an important consideration for an investor. There are a variety of different lease options available on commercial properties, including gross, net, triple net, and absolute NNN leases, which all may have specifications or variations unique to that lease/lessor agreement. Read more
Net leases are becoming an increasingly attractive option for investors looking for a stable, hands-off investment property.
A quick refresher; a net lease requires tenants to pay for some property expenses the owner would typically cover. These added costs are in addition to their rent and may include things like utilities, maintenance, real estate taxes, and insurance.
In general, a net lease renter is going to be a single tenant of a free-standing building. So, this might include a bank, a fast food restaurant, or a store. Read more
As a commercial real estate owner or someone looking to invest in a commercial property, you want to develop a steady income stream that will make your investments profitable and worthwhile. A large part of your success will be dependent on the individuals or businesses you attract as renters for your property, and how you handle those relationships as part of your investment over the long-term. Read more