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.
These expenses often include property insurance premiums, maintenance costs, and property taxes. In a traditional net lease, the property owner pays each of these additional costs. However, depending on the kind of net lease you have, the tenant may actually be responsible for one or more.
Single Net Lease Vs. Triple Net: What’s The Difference?
Single net lease properties aren’t very common. In these leases, the tenant becomes responsible for the taxes associated with the property rather than the property owner.
The property owner in a single net lease is still responsible for other expenses such as operating expenses, maintenance costs, and property insurance premiums. A property owner may want this kind of net lease if they prefer to hold onto the reigns of their property, and usually, will take on the task of collecting the amount due in taxes from the tenant, and then remit it to the government each year to ensure taxes stay paid and current. However, these types of leases are rare because many property owners prefer to file the property’s taxes themselves. This is because landlords want to ensure the taxes are paid correctly and on time.
A triple net property puts a greater amount of responsibility on the shoulders of the tenant. Triple net properties require the tenant to pay for property taxes, insurance premiums, and maintenance costs as well as rent.
Surprisingly, many tenants prefer NNN leasing because it gives them a greater sense of control over their business. For instance, the tenant is able to choose the maintenance people they’d like to fix the problems on the property when it works best for them.
A triple net investment is also a popular choice among potential property owners because it allows them to invest in the property without as much responsibility. This can be particularly beneficial when the landlord works a full-time job and isn’t able to regularly take time off to make repairs.
Triple net properties additionally give landlords a greater sense of financial security. Because the property owner doesn’t need to calculate new maintenance costs and taxes, they’re able to calculate a stable revenue coming in from the tenant.
Triple net (NNN) leases are popular among investors who want a relatively low-risk opportunity to build equity and earn a steady, reliable income from the property at the same time. In a NNN lease, a property owner has the opportunity to pass the majority of a building’s expenses to the tenant, who build those costs into their business operating budget. By passing on the operating expenses and taxes to the renter, investors limit their risk by reducing the impact of market fluctuations and hikes in taxes that can occur over the term of the lease.
NNN properties can be a great investment for those new to commercial real estate investments. For more information on commercial leases and NNN properties for sale, contact Sands Investment Group today.