Are Triple Net Properties a Good Investment?
One of the most common ways to make a profit from real estate is to rent it out. There are different types of rentals, but Triple Net is the most popular type of rental due to its simplicity. Are Triple Net properties a good investment? Indeed, this is a good opportunity for investors as the risks are minimal, and the earnings are stable.
What do those who consider Triple Net Properties as a promising business need to know? In addition to the benefits, you need to be aware of the risks you may face. In this article, you will find out about the key benefits and risks of NNN, along with tips for novice investors.
What is NNN?
This is a lease agreement in which not the owner is solely responsible for the costs associated with tax, insurance, and maintenance of the building, but they share it with the tenant. This is one of the popular models in this area and you will realize why next.
For example, if a property owner leases a commercial building, then the tenant will be responsible for taxes, insurance, repairs that may occur during the term of the lease. Despite the cost of the lease is much lower than the regular rent in the contract, the owner receives a special benefit. What exactly is the advantage? This is a stable income with minimal risks. In this case, there is an opportunity to increase the value of the main property. Investors do not have to worry about management costs, repairs, and payments.
What Are the Main Benefits of NNN?
Are Triple Net properties a good investment today? Yes, so let’s discover why by highlighting the key benefits of this strategy.
Predictability of the Income
After the contract is signed, both parties get a clear understanding of all the conditions that will be in force until the contract term ends. Since all rent increases are always specified in the contract, both parties understand what will happen and how. That’s why the investor has a better opportunity for financial planning and forecasting.
The Simplicity of the Investment and Control Processes
Investing in this type of real estate minimizes all risks. There is no need to somehow improve the building, which saves income. This becomes the responsibility of the second party, and the only thing left for the investor is to comply with the contract terms and receive a stable income. As for the second side, they also receive special advantages. Therefore, this type of rental is very popular and in demand in the business area.
Stability of the Income
Well, perhaps the most invaluable advantage of this type of investment is stability. The probability of default on long-term leases is low, especially when it comes to large real estate. So, this is a good investment if you need stability.
What Are the Risks Associated with NNN?
As with any investment, this type also comes with its risks that every investor needs to be aware of. But the area of real estate investment is always an opportunity to remain in favor, even when the market collapses. Therefore, this area will always be one of the most profitable and promising to invest and drive money from. However, keep in mind the following risks of NNN.
It is logical that if the tenant declares bankruptcy, this will affect the investor’s income. In this case, it will be necessary to quickly find a new tenant. To minimize this risk, some investors are offering tenants to buy equity in real estate portfolios.
As with any property, location matters. For example, a prime location is always green for charging a higher rent. Tenants accordingly receive a greater flow of customers in a favorable location of the property. By the way, a favorable location minimizes the first risk. In case of the loss of a tenant, it is possible to quickly find someone who wants to rent.
In the case when the market is in a state of recession, there is a need to lower the price. That is, it is necessary to reduce the rent, which will undoubtedly affect the income. But these are the realities of the real estate market regardless of the renting strategy you choose.
What Else Investors Need to Know About a NNN?
Before signing this type of contract, it is necessary to get a complete picture of the property you intend to rent out and its profitability potential. To do this, consider the following factors:
- investment rating analysis.
- analysis of financial statements.
- overall business analysis and potential of the business.
In addition to this information, it is also worth doing a market analysis in the area of your property. It is necessary to analyze the passability of people, the average income of the population in the district, as well as the cost of renting real estate. This will provide information about what level of income you can expect and what rental price should be set.
Is There a Need To Use Expert Help In NNN Investment
There are also specialized services on the market today that welcome you to hire the adviser who will search for suitable tenants with a good reputation and business prospects. Such specialists help to draw up a contract, estimate the cost of rent and find partners for you. Is it worth it to use the services of such a specialist?
If you are new to the real estate and investment industry, then this might be a smart decision, especially if you do not have experience in investments and do not know the specifics of the real estate industry. The help of an NNN consultant can be a lifesaver in finding conscientious and promising tenants.
Also, such assistance may be appropriate when you are planning to invest in real estate outside of your town or state. Lack of understanding of the area specifics and the population can become an obstacle to setting reasonable prices and approaching the process of finding tenants correctly.
Triple Net is a promising area in real estate investment. This is one of the low-risk strategies that comes with the opportunity to get constant income. So, NNN is a good idea today, especially for beginners.