Advantages of Making NNN Investments
Since investment-grade tenants frequently rent these properties, they provide a low-risk investment.
- Predictable income, thanks to rent and other monthly costs paid by the renters.
- NNN renters have the assurance of a long-term lease because they sign agreements for seven to ten years or more.
- Possibility of accumulating equity because of the long leases and the landlord’s limited financial responsibility
- Only the structural components of the property are required to be maintained or cared for by the landlord.
- Tenants that rent these sorts of houses expect to stay for an extended period. Hence turnover is less likely.
- These renters prefer to be near their customers, so it may be simpler for you to locate a new tenant once they move out.
- A NNN investment may be made almost anywhere in the country because the owner has practically little liability.
- Tax advantages come with commercial real estate, as they do with all of them.
Investment in triple net properties: What You Need To Know
When investing in NNN properties, there are several measures to consider.
Our clients who have invested in triple net investments around the country have found the following most efficient:
1. Identify Your Investment Return Goals
Returns on triple net lease investments vary depending on the tenant, location, lease length left, landlord duties, year of construction, and more.
Two investments with the same tenant and guarantee might have vastly different cap rates.
As an investor, you should decide what return is best for you and stick to it. If you want a 5.5 percent cap rate, don’t settle for a 5 percent cap; there should be many alternative chances in your price range if you do your homework.
Before consulting a specialist to assist you in selecting an investment, perform your market study.
2. Find A Triple Net Lease Expert
Once you know what you want, talk to triple net lease advisers to discover the most excellent fit for you and your team.
You need a triple net lease advisor to discover the suitable investment, do your due investigation, and set yourself up for success.
Inquire about the broker’s experience with these sorts of assets while interviewing possible advisors. Residential real estate agents and commercial brokers are unlikely to have this level of expertise.
There are many complexities to commercial real estate investing that can trip you up or create lost opportunities, so having an experienced and informed adviser is critical.
3. Set Tenant And Term Criteria
Not all tenants or triple net leases are made equal.
Some NNN investment prospects may appear to have a low cap rate, but upon closer inspection, the existing Lease only has three years remaining.
Each renter gets a unique credit score based on their financial soundness, number of sites, business or sector, and more.
If you receive a corporate guarantee, a tenant with seven sites in Tennessee is riskier than one with hundreds nationally.
Some leases are backed by the firm, while others are supported by a new franchisee, who may or may not pay the rent if their site fails.
Set your tenant and term requirements upfront so you can focus your search.
4. Find A Lending Partner
While triple net investments might be enticing all-cash offers, you should start talking about debt early on.
Because attractive investments may be found in both Nevada and Georgia, you’ll need a lender that can travel with you nationally. If your local bank is willing, you may use their services or hire a mortgage broker to do the job for you.
Having those financing conditions upfront (or at least 30,000 feet) can help you underwrite projects faster when you find anything that meets your requirements.
5. Compare Offers And Make A Decision
You should keep a Google Drive or Dropbox folder containing information on the many sites you’re insuring. Given that you won’t be visiting every property in person, it’s helpful to store everything in one place so you can quickly examine it when discussing a project with your team, partners, or investment adviser.
I have a spreadsheet that examines the merits and downsides of each NNN investment, but do what works for you.
Once you’ve chosen a home, have your broker or financial adviser create a purchase agreement!
6. Due Diligence on the Asset And Tenant
After your offer is approved, you must investigate the asset and the renter. Since you won’t be physically there (unless you travel out to visit the property), hire a local inspector to check the property and provide a report for your consideration. The present Lease should be reviewed next.
Even though my asset manager and I will evaluate the Lease, I will still send it to my lawyers for their consideration. You’re buying the Lease and the revenue it generates, after all. So, have your lawyers look at the paperwork.
Other areas of due diligence are more “standard” in commercial real estate
7. Relax And Collect Your Checks
Then all you have to do is cash the cheques!
The advantage of NNN investments is that you are just responsible for collecting rent and predicting vacancies.
Your renter will keep paying down your mortgage, increasing your equity in the property, while you keep the earnings.
Types Of Net Leases
Triple net properties are appealing real estate investments for several reasons, including low risk, minimum landlord obligations, and long-term passive income.
Today, we’ll discuss all you need to know about triple net leases to decide if they’re right for you.
What Is A NNN Lease?
This type of business lease arrangement places the burden for additional rent expenditures such as standard area upkeep, property taxes, and building insurance on the tenant or lessee.
The three “nets” are usually paid monthly to the landlord together with the base rent.
In addition to retail, these leases are becoming widespread in office and industrial sites. As a result, the renter is responsible for paying property taxes, insurance, and maintenance costs.
Net Lease Types
Net leases are classified as follows:
- Single Net
- Double Net
- Triple Net
- And Absolute Net
In a single net lease, the tenant is responsible for both the basic rent and the property taxes due on the property.
In a double net lease, the tenant is responsible for the payment of their basic rent and the amount of property taxes, and the cost of building insurance.
In a triple net lease, the tenant is responsible for the payment of their basic rent and the amount of property taxes, building insurance, and general care of the common areas.
Absentee-only net leases transfer all tenants’ duties, including structural building upkeep, leaving the landlord with no responsibilities other than to deposit the tenant’s checks.