In the modern challenging world, many investors are looking for stable opportunities offering long-lasting benefits for years, if not decades. This is possible indeed, provided that you use sufficient models appropriately. The Triple Net Lease agreement is one of the most appropriate yet underestimated mechanisms, offering long-lasting gains with minimal involvement and expenses from the investor’s side.

This opportunity sounds good, doesn’t it? It works even better, especially if you find a reliable tenant. In this article, we will discuss this point in detail to help you make the best choice in the future. It is worthy and tested by many investors across the USA.

What Are the Core Features of a Triple Net Lease Agreement?

A Triple Net Lease agreement – sometimes called the NNN – is a long-term rental agreement that deals with a commercial estate where a tenant bears the vast majority of costs and obligations associated with the property maintenance. That is why the NNN is sometimes deemed to be an agreement that brings a passive income to a property owner.

On the other hand, it is also essential to highlight that the NNN is zero-risk. The major risk in its case is associated with finding NNN tenants that will fulfill their obligations timely and in full. We will speak about this major endeavor from the investor’s side a bit later.

How Do the NNNs Work?

According to the Triple Net Lease agreement, the tenant pays the most, if not all, operational expenses, including rental payments, maintenance, and sometimes even repair costs. The property owner typically bears only the capital repair expenses or other significant improvements of the leased property.

Even if this agreement seems to be passive for a property owner, it actually imposes some obligations on this side as well. The property owner remains in charge of the roof maintenance, foundation, and, most often, common area maintenance also. Other expenses may be in place as well, depending on the content of the NNN agreement.

In this context, it is also important to cover the matter of rental payments. Under the NNN agreements, these payments are typically less compared with other lease agreements. This specific feature ensures considerable benefits for a tenant. The latter bears more obligations but pays less compared with similar business arrangements. At the same time, the NNN is a long-term agreement meaning it is beneficial both for a property owner and a tenant who can arrange a stable and predictable collaboration.

Benefits of Triple Net Lease Agreements

To form a clear picture of this agreement, it is essential to explore why it is so beneficial for the property owners and worth their investments:

1. Passive income. This is a primary benefit for a landlord who obtains a sort of passive yield. Unless the property owner has to deal with a large-scale repair project, the landlord can sit and collect the monthly payments only.
2. Minimal management is needed. Investors are not involved in day-to-day operations or are involved in these processes at an absolute minimum. The vast majority of obligations and expenses focused on operational management bear the tenant. The latter also pays all the utilities in full.
3. Reliable tenants. Most agreements of this type are concluded with reliable tenants only. This is a key element. The tenant needs to have a reliable track record and seek long-term cooperation. In this case, the tenant will be more reliable. We will reveal this issue in detail later.
4. Longer terms. This is a benefit for an investor since it becomes possible to get a stable income for a long period of time. Usually, such agreements are concluded for 10 or even more years. Such terms are very favorable because they minimize the risk of losses because the property remains vacant between different tenants.
5. Favorable terms of financing. If you would like to invest in real estate and conclude the NNN agreement further, it is typically easier to obtain financing for this purpose and do this on more favorable terms. If a bank or other financial institution sees that the investor has a reliable tenant, it can provide financing under very favorable terms. For instance, there may be only 5-20% down payment.

Winning NNN Tenant Criteria

Even if you have a superior real estate object, selecting reliable triple net lease tenants is an essential component of success. Here are several tips that will help to find you the right fit in your case:

• Brand. This aspect is underestimated yet it turns out to be very important for a reason. A company that has and develops its own brand usually searches for a property with a specific location to associate its brand with this location. This effort is usually long-lasting. That is why a tenant typically searches for some long-term lease opportunities as well. In addition, a brand is also usually very keen on fulfilling its obligations properly since it carries about one’s reputation a lot.
• Previous records. It is absolutely fine to request such records from a potential tenant. A reliable one can demonstrate the same previous records and even references from the previous contractors.
• Financial stability. Sufficient financial state is one of the most valuable NNN tenant criteria. A potential tenant has to demonstrate the availability of funds needed to cover the starting periods of the NNN agreement. It is also a must-have to evaluate the preceding financial statements and a business plan. If these documents in conjunction show that a potential tenant is capable of covering all of the rental fees, this tenant is more likely reliable.
• Transparency during due diligence. The preselected contractors have to be open for screening and compliance. Reliable tenants are usually open to providing all requested details and documents confirming they are capable of bearing the obligations under the NNN. If the tenant discloses all the information needed, it is the right one with a great degree of certainty.

How to Find Reliable Triple Net Lease Tenants: a Step-by-Step Guide

If you have a superior property object, this doesn’t guarantee you can find a perfect tenant instantly. If you want to make the best deal, there are simple steps to pass:

1. Identify clearly your target market. Before you start negotiations with potential tenants, do some research regarding your target market. There is also one important background detail. You should understand all of the characteristics of the property you plan to lease – its location, current state, specific features, etc. The goal is to understand how these features match the needs and preferences of different types of businesses.
2. Advertise your property. If we set the stereotype that good offers don’t need advertising, this minor yet meaningful effort allows us to get more options for consideration. If more potentially good tenants know about such an opportunity on the agenda, you can choose the most reliable one and negotiate the best terms for you.
3. Screen your applicants. After getting the applicants from potential tenants, it is essential to carry out thorough checks in each case. Even if they seem sufficient, you need to verify their financial and operational stability since the NNN agreement is a long-term arrangement. There is nothing bad in requesting their credit reports and financial statements. If you want to select a truly reliable tenant, also draw special attention to a business plan. Requesting some references is also a good idea.
4. Don’t be in a hurry when you negotiate your lease terms. Finding NNN tenants who are reliable is only half of the story. It is also essential to negotiate the best terms for you. The best solution in this case is to minimize your costs yet maximize potential rental yields. Ensuring a long-term rental arrangement is crucial as well.

Aside from these terms, there are also many other important aspects. Don’t forget to cover such aspects as property improvements, security deposits, renewal options, etc. If you are not sure about any of these terms, there is also an opportunity to consult with a lawyer. This endeavor will allow you to protect your best interests and ensure overall compliance with the applicable laws.

1. Maintain your relationships with a chosen tenant and don’t neglect periodical inspections. After you sign the NNN agreement with your tenant, maintain a good relationship with the chosen one. This agreement is a long-term one. Thus, it will be essential to have good relationships. However, another side of the coin is to maintain checks of the leased property periodically to make sure the tenant fulfills all of its obligations timely and in full.

Bottom Line

The NNN agreement is a super opportunity for many investors across the USA. It offers long-term opportunities for obtaining a stable income. Owning a good real estate object and finding NNN tenants are probably two of the most valuable aspects to address in the first turn.

If you want to find a reliable tenant, draw attention to one’s history and financial state. A preselected tenant has to demonstrate that one has enough resources to fulfill its obligations under the NNN and a clear business plan, ensuring a stable income. Check its previous financial statements and references. Prioritize those contractors that develop their own brands. They will more likely strive to fulfill their obligations in full and keep a good reputation under any circumstances.

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