Risks of Triple Net Lease
Triple Net Lease or NNN Rent is a lease where the tenant pays maintenance, insurance, and property taxes on top of the regular rent instead of the landlord. The tenant assumes all operating costs of the property. It includes variable and fixed costs, as well as the cost of own accommodation and even the maintenance of any common area that may be related to the property. The risks of triple net leases are virtually non-existent.
NNN leases or triple net leases are one of the most popular types of net leases and are used for retail space or detached commercial buildings. This real estate lease is described as a lease between a landlord and a tenant, with the obligation to pay operating expenses transferred from the former to the latter. Triple net leases are considered to benefit the landlord more than the tenant, and it is important to review the contract and agree on a limit that is charged annually. Leases tend to fluctuate significantly and are subject to increases and decreases in operating costs.
Examples of triple net leases
Ramesh is the owner of a bookstore and is no longer interested in him due to poor health. He decides to rent out his property instead of renting it out to a neighbor because he really wants to deal with maintenance and tenant issues.
This will free it from any operating and maintenance costs. The contract is drawn up and Ramesh now receives a fixed payment every month without thinking about all the smallest details. It’s a neighbor who now has to pay insurance, maintenance, taxes, and property rent.
Characteristics of Triple Net Ownership
Triple net rental properties are considered a good investment opportunity for retirees and professionals. Some of the important characteristics of a triple net rental property are as follows:
Triple network leasing is more commonly used for stand-alone commercial buildings and retail buildings such as banks, office buildings, malls, industrial parks, restaurant chains, fast food restaurants, gas stations, convenience stores, grocery stores, government offices, and pharmacies.
It is the tenant who is responsible for the costs of the property, such as property insurance, taxes, maintenance, utilities, and rent.
The tenant of a property with a triple net lease is responsible for paying for the repair and maintenance of the premises, exterior walls, and roof.
The triple net lease does not cover the accounting or legal fees charged by the APC and the landlord’s attorney, respectively, in the preparation or review of documents.
Some operating expenses for triple net lease properties that can be negotiated between landlord and tenant are parking fees, inspection fees, broker fees, landscaping, security services, property fees, and management fees.
Triple Net Lease properties are considered a good investment for investors as they offer a stable source of income but with less risk.
A triple net lease has a lower rent because it is the tenant who is responsible for running costs.
It’s a simple concept that makes it easy to own and manage properties.
An important characteristic of a triple net lease is its inherent flexibility and stable income.
Benefits of a triple net lease
Get rewarded without risk – Triple net rental property is considered one of the safest investments as it guarantees a predictable and stable income over a long period of time. Because the tenant is a more frequent part of the franchise, the deal is considered financially sound with a lower risk factor.
1. Low risk investment
Since the tenant covers most of the costs associated with the property, this indicates a low investment risk for the landlord.
2. Reliable and stable income
Triple net rent is structured in such a way that it offers a constant rent each month for a longer period of time.
Triple net lease properties are added to an investor’s portfolio to create more capital. They hold on to the property for several years and sell it during the peak period.
4. Profit is accrued through tax deferrals
If an investment property is valued and you decide to sell it, you can avoid paying tax on your income by investing that profit in another property. This will allow the investor to invest in larger properties and accumulate wealth without paying taxes every time a profit is made.
5. Freedom from managerial responsibilities
The most important benefit of a triple net lease is that it offers the landlord freedom from the management obligations that come with owning a property. It is the tenant who is responsible for the maintenance and any costs of this property.
6. Property taxes
In the event of an increase in property tax, it is transferred to the tenant, not the landlord.
7. Lower rent
Because the tenant bears part of the cost of the property, the landlord sets a low rent for the property.
8. More freedom with structure
The tenant has the ability to make some changes to the structure of the property with triple net rent compared to the person who rents it without him because he does not have such an opportunity.
9. Ownership control
A property tenant with a triple net lease has more control over the property compared to other tenants, as they can repair the roof or plumbing system in case of an emergency. The tenant does not have to wait for the ease and whim of the landlord to do so.
10. Good location and long trail
A long term lease gives the tenant the opportunity to create a long term location for their business. This helps them to have a viable footprint in the market. In addition, it helps the tenant to receive constant information and frequent traffic to their business.
11. Long term placement
Triple net rent guarantees long-term employment of the tenant and the landlord does not have to look for a tenant again and again, and this too within a short period of time. In addition, the investor is spared the risk as well as the loss that the property may suffer when it is between tenants.
12. The income figure is separated from the actual rent
Rent is kept separate from other costs and this allows the property owner to maintain their own ledgers and keep income figures separate from actual rent due to the basic nature of triple net rent.
13. Tax incentives
Although the tenant is liable to pay property taxes on a three-time net lease, he can make sure that these costs are reflected as business operating expenses and can receive tax benefits for his business on a three-time net lease.
14. Property can be sold with rent
Property owners can sell their property even if they have a lease. It is a safety net for the landlord if the price of the property rises or if there is a need to sell in case of financial difficulties.
The tenant need not worry if the lease of the property passes from one person to another without any undue impact on their business. The new owner cannot evict the tenant and, in addition, he will have to comply with the terms of the old contract.