Why are triple net leases a good investment? Because single-tenant triple net (NNN) properties can provide some of the most reliable income streams in the commercial real estate investment industry. Period.
NNN properties provide investors with a relatively low-risk (and very low touch) option for creating a consistent, long-term revenue stream. In a triple net lease, the tenant pays an agreed upon, monthly rental amount in addition to covering a majority of operational costs associated with the property, such as: annual property taxes, insurance, and maintenance costs.
Triple net properties are attractive to many investors because they offer reliable returns over time, with little to no landlord duties since the tenant is typically responsible for costs and responsibilities of successfully operating their business in the location. Triple net investments are also a great way to build equity and add diversity to an investment portfolio. As such, we’re seeing many investors looking to switch from high-touch property types (such as apartment complexes) to low-touch, consistent return NNN properties to add a line of passive income aligned with their investment strategies.
But not all NNN properties offer the same type of investment opportunity. If you’re considering NNN investing, you should understand all the nuances of this type of real estate, so you choose the best option for your portfolio and overall investment goals.
In this guide, we’ll share our triple net insights and outline the key things you should be looking for in your triple net investment.
Ideal NNN Property Locations
As with any type of real estate, location is a vital component of NNN property value and will determine how successful your investment will be in the long-term. When weighing your triple net property options, there are two different aspects of location that you should consider carefully: the potential in the physical location of the building and the viability of its geographical location.
Physical Location of a NNN Property
The best NNN investments are properties that have an established and accessible physical location. Ideally, you should be looking for triple net investment that is located in an area of town with good traffic and accessibility. Corner locations are especially good for accessibility and you should also consider the other businesses operating in proximity to the NNN lease building as well.
If there are strong anchor locations close to the triple net location you’re looking to invest in, then that’s a good signal of strong traffic and consistent business in that area. Anchor properties are important for attracting customers and shoppers to the area, which will benefit your NNN location with that established traffic.
Geographical Location of a NNN Property
To fully determine the potential in a triple net investment, you also need to study the state of geographical location. You want to look for areas with high-growth rates and steady population increases. If people are flocking to a particular area or city, then the opportunity for success in a NNN investment rises alongside those growth patterns.
Economic growth is another success indicator for NNN properties. If the area has positive employment rate increases and a healthy economy that is growing, then there will be a wider pool of consumers who want to visit stores, restaurants, and other shopping locations with more frequency and flexibility to spend.
In order to find the best possible location for a triple net property, you’ll want to keep two things in mind: tenant demand and the ability to replace tenants quickly. While the strength of the tenant in your building does play a key role in your ROI, location is still an important part in net leased real estate.
You’ll want to invest in a triple net property that’s located in a popular area with high NNN tenant demand. This way, whether your tenant does well or abandons ship you’ll be able to replace them quickly without any hiccups.
For instance, a tight employment market in the industries using office spaces fueled a high tenant interest during the third quarter of 2017. Leasing activity reached a two year high of 62.4 million square feet that quarter, and remains strong. Yet, already, experts say that leading banks are backing away from the commercial office space industry. Focusing on trending industries can serve investors well in the short run, but a prime location can serve you well for many years to come.
High-growth areas change over time, but currently we are seeing strong increases and great NNN investment potential in metropolitan markets, particularly in:
- Austin, TX
- San Antonio, TX
- Seattle, WA
- Salt Lake City, UT
- Boise, ID
- Portland, OR
- California Metro Areas
High Potential Business Types of Triple Net Properties
Business type is another influential factor in assessing the value and long-term potential in a NNN property. While choosing a triple net lease location in a steadily growing location will always give you a strategic advantage, you should also consider the business type operating in the location and stick with those types that offer consistent potential despite the state of the economy. Meaning, you should consider properties that are more “recession-proof” that will continue to attract business even in economic downturns or slow times.
These types of businesses include places that people will always need to go, despite the state of the economy, such as:
- Grocery Stores
- Convenience Stores
- Drug Stores
- Discount or Dollar Stores
- Medical Clinics
The Best NNN Tenants
Many NNN properties will come with a tenant in place, secured with a long-term lease (ranging anywhere from 10-25 years). If you’re considering a NNN lease location with a tenant in place, who will remain in place according to their existing lease terms, then you want to make sure you review the history of the tenant’s business in that location. Make sure they have a strong history of paying rent on time and have always made tax and insurance payments according to their lease terms as well.
You’ll also want to ensure that they’re doing well in the location and have longevity to continue succeeding when you take over ownership. If the triple net tenants have been in place for a long time with a solid history, then this helps further secure your investment in a NNN property.
The Long-Term Value of High Yield Brands and Chains
High yield brand and chains tied to recognizable companies and brands typically attract high-quality, long-term tenants to run businesses or franchises and they’ll also usually have ideal NNN property locations in bustling geographical regions. The brand alone will often help drive traffic to the location and help secure longevity and success (as well as security and long-term potential for both the tenant and the investor).
High yield, branded NNN locations are usually very highly sought-after and tend to sell for higher premiums. However, the long-term potential is higher in these types of NNN locations because loyal consumers will continue to choose their favorite brands over competition. Investors should consider tenants that provide products or services that are necessary even during a bad economy. This way, you won’t have to worry about your tenant going out of business any time soon.
Some of the specific, high yield chains we’re seeing do very well in the market (for investors and tenants alike) include established brands such as:
- Family Dollar
Lesser Known Industry Tips For Investing in a Triple Net Property
It’s been said that money can’t buy happiness, but that happiness alone can’t keep out the rain. It’s for this reason that many people choose to invest their money as a way of generating more income over time.
Commercial property is considered a great source for investing in one’s initial portfolio. This is because, unlike residential real estate, you have a greater number of tenants and thus a greater source of income.
However, it can be challenging to invest in commercial listings when you’re unsure of what makes the best investment and how to invest. That being said, here are a few additional tips for potential NNN investors:
1. Know Your Worth From the Beginning
First and foremost, before you invest in an NNN property and consider a lease rate, it’s important to know that investors in NNN property offerings have to be authorized with a net worth of $1 million at the least. This is, of course, without the value of your primary residence included. If you don’t have a net worth of $1 million, you may still be able to invest if you have an annual income of $200,000.
2. Take Great Heed of Your Tenant’s Credit
A triple net investment is often considered a gold mine investment for those who don’t have the time or don’t want the time to do maintenance, pay maintenance fees, file property taxes, etc. However, it’s essential that you choose a tenant that has a great credit score because they’re going to be taking over these jobs for you. You want to be sure the person you let into your building does their job right.
What is a Triple Net Lease Advisor?
Net lease advisors specialize in the NNN property market and fully understand all the trends impacting the investment potential of a location. This unique level of expertise helps in guiding investors through the process of finding, choosing, and funding the best NNN property that is fully in line with your goals as an investor. Working with a specialized net lease advisor over a traditional broker will give you deeper insight into the potential and longevity of a triple net location, and you can fully leverage their expertise in the NNN market to find and invest in the best NNN property for your portfolio.
The Advantage in Working With Net Lease Advisors
Working with an experienced net lease advisor can help you navigate the NNN market and choose a triple net lease property with more success and confidence. But what exactly does a NNN lease advisor do and how can you vet your net lease advisor to ensure they’ll support your investment goals?
What Does a NNN Lease Advisor Do?
A net lease advisor draws from their large pool of expertise to provide customized services for your investment such as:
- Completing property evaluations and doing site visits
- Analyzing your portfolio and making recommendations
- Offering strategic advice and consultations as you choose the best NNN property
What to Look For in Your Net Lease Advisor
An established net lease advisor can be very beneficial to meeting your investment goals with NNN properties, and you should do your due diligence in researching any net lease advisor you’re considering working with to search and quality triple net property investment.
But what should you be looking for in your research? Here are some of the important considerations that should go into researching and choosing a net lease advisor:
- Any net lease advisor that you choose to work with should have demonstrated experience in the NNN lease market and be able to successfully advise you with insight into the market, knowledge of property value and investment potential, and be able to give you details on the short and long-term profitability of your net lease investment.
- You’ll also want to look for a net lease advisor with a proven track record of closed NNN deals and successful negotiation strategies. You want to work with an advisor who has solid experience in the market and can showcase their recent deals and give you case studies on how they’ve negotiated different scenarios in NNN property deals.
- Finally, you need a net lease advisor who is focused on client goals and will treat you and your investment goals with respect. A great net lease advisor isn’t just trying to make a quick sale. Instead, they should be focused on meeting all your investment criteria and helping you choose the best NNN property for your portfolio.
Is Investing in a Triple Net Property Right For Me?
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.
However, commercial investments aren’t for everyone, and triple net property investments in particular often require a certain level of financial sophistication. That is why it’s important to know whether you’re up to the task before you invest. Here are a couple ways you can determine whether or not a triple net property investment is the right decision for you.
Understand Your Financing
In general, individuals who are interested in making a triple net property investment have a net worth of at least $1 million — aside from the value of their primary residence. If you don’t have a net worth of $1 million, an annual income of $200,000 will do just as well. In addition, you need to understand the relative risks and rewards of NNN investing.
Once you know whether you can afford to invest in an NNN property, it’s essential to know how you would finance the property. For instance, do you have a credit union or bank you know you’d be able to use? Do you have a more creative method for purchasing your commercial property?
Ask yourself these questions before making the decision to invest in commercial property. It’s one thing to want to invest and another to be able to invest well.
Be Realistic About How Much Time You Have
Potential commercial real estate investors may be looking for a smart means of investing their extra money. However, it’s essential to make the right investment choice.
The NNN real estate market may not be your best option if you have no time at all to manage your commercial properties once you obtain them. However, if you do have a little downtime, a triple net lease property may be right up your alley.
Triple net properties place the responsibility of the property’s maintenance, building insurance, and real estate taxes on the shoulders of the tenant. What’s more, triple net leases last for longer periods of time. Therefore, you won’t need to search for tenants as often as you would with a single net lease property. While the returns may be lower than other types of commercial property investments, the management time and tenant turnover is far lower as well.
Sands Investment Group is America’s fastest growing net lease investment company, with over 2,100 transactions in 48 states (to the tune of $4.5 Billion) since 2010. Our experienced team of net lease advisors and brokers are experts in NNN market and can help you find your next best investment opportunity by helping you navigate through all the opportunity and risk factors of every NNN property that meets your investment goals.
Want to learn more? Get in touch with an expert net lease advisor today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.