Investors are often attracted to NNN leases, or triple net leases, because of the consistent income stream they can provide while still being a lower risk property. These types of leases are a long-term solution for tenants, while providing property owners with plenty of benefits as well.
The highlights of triple net leasing for investors include low-risk, low-touch investment with consistent return, as landlords in these agreements pass on most of the other property fees (like taxes, maintenance, and insurance premiums) to the tenant. Tenants can enjoy a long standing location to become a part of the community, more control over maintenance and repairs, and often the ability to plan years in advance.
Here are considerations you should keep in mind when finding the best opportunities for NNN deals, from the property selection to tenant options.
Best Properties for NNN Leases
When considering a property to invest in for the purpose of a triple net lease, it’s not a one-size-fits-all scenario. Some properties make a better NNN agreement than others. There are several factors that are at play in a good NNN property. You want to take a close look at each property to make sure it can align with the features and benefits you are looking for in an investment. It’s not merely the building itself that is important, it is where that building is located. Let’s take a look at the difference between physical location and geographical location, and how those can determine the best NNN deals.
The physical location of the property is important for NNN properties, as with many real estate investments. You want to have a property in an area with good traffic and is easily accessible to many residents in town. This is often a corner lot at a main intersection. Another consideration for the physical location is the nearby businesses. Finding well known, established, and popular spaces to bring in customers for the tenant of the triple net properties is key.
An attractive physical location can bring in the right tenants that can use the space to their advantage. However, the building itself is less important: it needs to be in the right area as well.
Not all towns or cities are created equal when it comes to NNN leases. The geographical location of your property – or the town or city in which it’s located – can be a determining factor in the investment. A triple net property should be in an area of high population growth. Some cities and even parts of cities are growing at a rapid rate, bringing more potential customers to the area for your tenant. This means that the business leasing the property knows their customer base will continue to grow over the time of the lease. Consider the current population and the growth rate of areas when assessing your property investment options.
Identifying Good Tenants for NNN Leases
Once you have found a good NNN deal on the property, it’s time to find the right tenant for the space. Just like physical and geographic locations of a property, not all tenants are the right fit for your NNN opportunity.
When analyzing tenant applications, be sure to consider what types of businesses are recession proof, as you want someone who won’t default on a long term lease in hard economic times. You also want a business that is established, not a brand new one without much history. Strong business experience and an established brand help to make these business owners good candidates for NNN leases. Businesses that may be able to better ride out hard economic times include those in retail and medical industries.
When leasing to a retail store, it’s important to consider the type of store and whether it is a necessity or a luxury. With NNN commercial properties, which are typically upwards of 10 years, you want to ensure it is a business that will be around no matter the economic conditions. Some of these businesses that more easily ride out recessions include:
- Grocery Store
- Convenience Store
- Drug Store
- Dollar Store
Many chain stores enter into NNN leases, and these can be a good option for investors to partner with because they do have a long standing history of success and are well known by many communities. Chain grocery or convenience stores want a location they can settle into for years to come.
Another business or industry that lends itself well to triple net lease agreements is medical offices and facilities. These are not limited to primary care and specialty physicians. Dental offices, orthodontic offices, physical therapy, radiology facilities, and more are all good fits for the long term lease that comes with a NNN property. Medical facilities are always needed, no matter the economic climate, so these can be good tenants in triple net leases, too.
Expert Help for NNN Deals
If you are considering a triple net deal, you may need some expert help in identifying a great investment opportunity or finding the right tenant for the space. Finding the right physical fit for the property is important, as well as ensuring it’s in a good geographic location that will provide growth opportunities for both you as the investor and the tenant who eventually moves into the space. Selecting the right tenant fit can be equally as important, so taking the time to understand the needs of tenants and the terms of the NNN lease can help create a long-lasting property owner-tenant relationship.
When entering into the commercial real estate world for the first time, there can be some confusion or trepidation so finding a partner you trust can be helpful. The experts at Sands Investment Group are experienced and knowledgeable net lease advisors and are ready to help you find the best NNN deals. A net lease advisor can guide you through the process of identifying properties, qualifying for a property, finding tenants, and creating a lease agreement that works for both parties. If you’re ready to find out how Sands Investment Group can help with your next net lease investment, get in touch with our experts today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.