In today’s real estate scene, triple net lease properties are gaining popularity for their beneficial features. These include long-term passive income with minimal risks and responsibilities for the owner. Therefore, they’re attractive investment options, even for those who aren’t active in the industry. Their benefits stem from the type of lease structure.
It’s such that it relieves the landlord of the burden of certain additional expenses that relate to operating the property. It transfers that responsibility instead to the renter or tenant. Generally, we find these types of leases in retail property, but they’re spreading to others. That’s why it’s advisable to seek help in finding the best deals in various locations.
Explaining the Name
People find it uneasy to understand the triple net concept and why it’s so named. It’s because the extra expenses fall into three categories: building insurance, property taxes, and common-area maintenance. They make up the three “nets.” That’s because they prevent the owner from paying for expenses from the profit. Hence, the tenants pay them monthly besides their basic rent.
Difference from Other Net Leases
The other types of net leases include single, double, and absolute. Each one ascribes a different level of expense responsibility on the renter, the latter being the highest. For the single net lease, the tenant’s only responsible for property taxes with rent. Double includes that and building insurance. Meanwhile, absolute combines all with structural building maintenance.
Now we understand what triple net lease properties are about, why then should one consider it a good investment? There are many things you must know about it as a potential investor or landlord. That’ll arm you with adequate information to decide for yourself.
Triple Net Benefits
There are advantages of this type of property for both the renters and owners. They include long-term occupancy, low risk, and reliability of the income source, amongst others. Subsequently, we’ll discuss these benefits to know why people gravitate towards them.
- Occupancy is Long-term
The structure of triple net lease agreements is usually such that it allows long-term occupancy. For the renters, the advantage is that they get to spend a reasonable period on a property where they don’t pay the mortgage. Meanwhile, the owner or investor doesn’t lose money due to vacancies and the lack of new tenants. Thus, there’s a reduced risk of lost income for them.
- Poses Low Risk
As an investment option, it’s well-known that the tenant bears the cost of a considerable amount of the expenses. That includes tax, insurance, and maintenance. Thus, the owner is free from certain things that would otherwise be his/her responsibility. It, therefore, makes the triple net agreement a low-risk opportunity for investors.
- Provides Reliable Income Source
Between the long-term occupancy and the freedom from the property expenses, the owner earns a calculated profit. It means that there’s usually no undesired slashing of the amount you’ll get in returns. Therefore, the tenant footing these costs makes the income source reliable for the investors or owners.
- Gives Tenants Freedom
As aforementioned, the tenants are responsible for the property taxes and maintenance during their lease period. Thus, they have freedom with the place regarding design and other things not contraindicated in their agreement. Also, since the landlord has little to do with space for the specified time, the renters can customize it to their taste.
- Helps Build Equity
Resulting from the long periods of the leases, this type of investment provides the potential to build equity. Also, the minimal financial responsibilities for the landlord add to its value. Investors may, therefore, add triple net lease properties to their portfolios. That’s because they are conservative and low risk, and thus, create more value.
- Reduces Landlord Involvement
Another significant advantage to the investor is that it doesn’t require constant attention. Unlike regular lease agreements, tenants don’t involve the NNN landlord in the daily running of the property. Thus, it reduces the number of times he/she needs to be there. That’s why some people refer to it as a passive income, and the owner can even pursue other endeavors.
Disadvantages of This Investment
Unfortunately, the same way there are benefits, there are also drawbacks to acquiring NNN real estate for sale. However, it’s essential to discuss them for investors to be aware. It’ll also help maximize the knowledge and find ways around the disadvantages. We’ll see some of them below.
- Capped Investment Returns
The long-term lease agreements also have the capability of limiting earning potential. That’s because once you sign it, you can’t increase the rent even if the property’s value increases. Thus, it determines the returns for the whole period of a particular lease. It’s unfavorable because it hinders the investors from maximizing their investment returns.
- Vacancy Risks
It may be effortful to find another tenant once one occupant leaves because of the nature of the lease. Hence, there’s a risk of having an empty property sitting on the market for a long time. It’s also possible to incur losses during that period of vacancy. Since there’s no renter at that point, the investor will be responsible for any expenses.
- Expenses and Tax Liabilities
Meanwhile, the tenants may encounter huge financial burdens from bearing the responsibility of the various expenses. That includes utilities and operational costs of businesses. That’s why a strong credit profile is necessary. Also, being responsible for taxes makes them vulnerable to the associated liabilities. Thus, renters must be ready to face them.
Beyond having adequate knowledge of the triple net concept, one primary aspect is getting to buy right. It’s more than merely looking at NNN retail properties for sale and choosing one. That’s because besides knowing the advantages and disadvantages, there are other steps you must take.
- Get an Advisor
Before you start to look at NNN investments for sale, it’s vital to get an advisor. As a professional, the person would have more experience with triple net properties. He/she must be able to guide every decision you must take. That’s why it’s essential to seek out an excellent property broker and advisor to help in your search.
- Conduct the Necessary Research
After getting an advisor to guide you, you must then do due diligence to know about the property. You can start by checking for the right one and can see all listings here. Then, conduct relevant research on the asset to ensure it’s all it claims to be. That might even include hiring a local inspector to carry out a thorough review for you.
- Get the Funds and Submit an Offer
Ultimately, you can get the needed funds to make an offer on the property after ensuring everything is in order. If you’re sourcing for investors, you’ll have to prepare a report of all your findings for them to review. It must be convincing because that’s what’ll persuade them to back your investment. After submitting your offer, you can then wait for acceptance.
I am the man behind Final Scope, I was working as a marketing analyst for 4 years before launching Final Scope. Being a writer for so many years brought out the best in me to find and review products. Following my passion, I do take reviewing and analyzing products as a part of my skill and different opportunities to get your needs. Here, I aim to provide my readers with accurate information and reviews about products after detailed research and experience.