A Complete Guide to Buying Triple Net Lease Properties
There are many ways to invest your money starting from buying cryptocurrency to purchasing real estate properties. While some methods come and go, the investment in real estate properties remains as it has gained the reputation of being highly secure. It also provides stable passive income for the owners of properties.
Among real estate investors, there are also different preferences when it comes to selecting the type of the property. Those could either refer to residential property such as condos and family houses, or commercial one that mainly refers to office buildings, malls, hotels, and industrial buildings.
Even though there are plenty of similarities when it comes to investing in different kinds of properties, there might be differences when managing and maintaining them. In particular, commercial real estate widely implements triple net agreements, where the tenants are the ones responsible for operating costs of the building. The triple net lease agreements have many benefits for the commercial real estate owners in fact. Read this article to learn more details of what triple net lease property is and why most investors choose to put up money in it.
What is a triple net lease property?
The triple net or NNN lease property is the type of agreement in commercial real estate. Each N stands for the net and signifies one of the aspects of this agreement. The first net is associated with property tax, another net goes for the property insurance, and the last net refers to the common area expenses.
The characteristic feature of the NNN lease agreement is that the tenant takes responsibility for each net point. To be specific, tenants cover building insurance, pay property taxes, and are responsible for all the maintenance costs in addition to the base rent. This type of commercial real estate agreement is very popular because it conceals many benefits both for investors and tenants.
What are single and double net lease properties?
While the triple net lease property is the most desired option for investors, there are also similar types of commercial real estate agreements. Those are single net and double net lease options that relate to either one or two net aspects respectively.
Single net lease property
In this case, net or ‘N’ stands for the property taxes that should be paid on the regular basis. A single net agreement is very common in commercial real estate as it is convenient for many tenants.
Within the single net lease agreement, lessees are responsible for paying the property taxes. However, landlords are put at risk in this case as tenants might make late payments to the municipality. That is why property owners often include the amount of tax to the base rent and make tax payments on their own later.
Double net lease property
This type of agreement in commercial real estate is very similar to the one mentioned above. However, building insurance coverage is added along with the property tax payments. That is why tenants have to cover both these payments together with the base rent.
Compared to the single net lease agreement, the base rent rate is usually lower for the double net agreement. This could be explained by extra property-related spendings that tenants have to make on a regular basis.
How to invest in triple net lease properties?
Similar to residential property acquisition, investment in commercial buildings can be done in one of two ways. You can buy the commercial buildings directly from the seller or choose a real estate agency specializing in this kind of operations.
Buying directly from the seller
When you have an intent to purchase a residential unit or commercial property directly from the seller, you have to be extra careful. Make sure that the current owner of the building is reliable and has a good reputation. You may also refer to a legal counselor for advice in order to avoid any pitfalls during the document registration process.
When buying the commercial property directly from the seller, paying the full amount at once may be the only option. Also, you will certainly avoid any commission fees when making agreements without third parties involved.
Using commercial real estate agency services
This method for acquiring commercial property might be more secure than that mentioned above as a real estate agency regulates all the legal registration procedures. However, you will certainly have to pay some commission fees to the real estate agency. Those are obligatory as real estate agencies help to find the right property and assist in preparing the necessary documentation.
What are the benefits of investing in triple net lease properties?
As a rule, a triple net lease agreement assumes low-risk investment for those who buy such properties. This particularly concerns certain aspects of the contract between the owner and lessee, in particular, its duration. The triple net agreement for leasing commercial property is usually made for several years at least on average.
Continuous cash flow
The thing that comes as a result of the benefit provided above is the continuous cash flow. Lessees pay the base rent and cover extra costs associated with the property. This is done in predefined terms specified in the agreement.
As tenants are responsible for all the property-associated costs, spendings for the common area maintenance are under their control as well. This makes owners worry less about operational costs associated with the building. Those are tenants who pay for repairs, trash removal, and other services associated with sustaining commercial property in proper condition.
The triple net lease properties are often provided in excellent places of the city. Those have access to the driving path so plenty of people pass by it. This aspect is particularly beneficial for triple net property owners as they can easily lease it anytime even if the current tenants decide to change location.
Future projects planning
With constant cash flow, reduced responsibility for the building maintenance, and a great location, triple net property owners have space for planning new investment projects. As all the above-mentioned factors grant stability, this helps to plan future income and invest money in either commercial or residential buildings.