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 be 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
When you feel confident in your investment strategy, it’s easy to avoid reviewing your commercial real estate investment portfolio. However, an annual analysis of your portfolio and property can make a significant difference in your profit return by identifying what is working and what is not working for you.
Why invest in triple net properties? Because single-tenant triple net properties can provide some of the most reliable income streams in the commercial real estate investment industry. Period.
Discover what to look for when you’re searching for a triple net property investment right here.
For investors at virtually all levels, it can be a smart move to invest in the commercial real estate market. Not only can commercial property investments provide you with a significant return, but they can also give you a great way to diversify your financial portfolio. Read more
When it comes to commercial property investing, potential property owners will often see properties with different net lease types. In 2015 alone, investment in the U.S. commercial real estate market surged by 85%. Net leases are the type of real estate lease that tenants use to pay additional expenses on top of their rent. Read more
A single net lease is a commercial real estate lease agreement wherein the tenant of the property agrees to pay property taxes and rent. The property owner, or you, is then responsible for taking care of the maintenance fees and building insurance. Read more
No one chooses to start investing in commercial real estate overnight. The savvy investor conducts a lot of research into commercial leasing and triple net leasing before making any decisions, and it’s important to know with certainty that you will be able to give your investment your full commitment. Read more
Have you been considering a triple net property investment? With stock market volatility, low interest rates, and the slow recovery of the economy, demand for commercial real estate industry services has grown in recent years. In fact, the commercial real estate industry grew annually by 3.9% between 2012 and 2017. Read more