Which Property is Most Likely to Have a Triple Net lease?
There are many considerations to make when evaluating different types of leases. In fact, signing a contract always requires careful reflection on the conditions set out in the document. Before signing one, you need to evaluate several aspects, first of all with regard to the property and its ability to meet your needs. And one of the most common types of a lease is a net lease. In this case, a lower base rent has to be paid. In addition, the tenant is in charge of part or all of the additional expenses associated with the property maintenance. Different types of lease (single, triple, absolute, etc.) can be applied to commercial real estate, but let’s touch on primary on a triple net lease investment.
So what is a triple net lease? Triple Net Leases are a kind of lease agreement between the lessee and the lessor in which the lessee or tenant of the property agrees to pay not only the rent and utility charges but also other expenses related to the property, such as building insurance, building maintenance, property taxes, etc. To put it simply, a triple net lease is one of the leases between the lessor and the lessee on any particular property where the lessee will be responsible for paying the property taxes for that property, the insurance amount and also any repairs required for that specific asset during the lease period.
Because the tenant or lessee is paying for whatever the lessor is responsible for paying, the rent of the property is usually much less than the normal lease agreement where the owner of the property pays taxes, insurance and maintenance. It is also called net net net lease (NNN) due to its particular nature. Its amount is calculated based on the capitalization rate, which, in turn, depends on the creditworthiness of the particular tenant.
Triple net investment in leasing
It is a great investment tool. But it comes in handy when the investor follows some rules. Let’s take a look at some rules that can make it useful:
1. When it’s done as a portfolio: If the investor can create a portfolio of three or four commercial properties and put them on a triple net lease, the investor gets a lot of benefits. First, the investor doesn’t have to worry about maintenance, taxes and insurance. Everything is taken care of. And at the same time, the investor receives a good return on his investment.
2. When it is done for quite a long time: Since the lease amount is lower in this net lease unless it is done for at least 10-15 years, it will not be beneficial. Therefore, choosing this lease helps the investor to get a reasonable return for a very long period without any worry or anxiety.
3. Built-in lease escalation: While this goes without saying in any lease, the investor must still ensure that the built-in lease escalation clause is included in the lease. It means that every year the investor would get an increase in the lease amount. As a result, there are no worries about a return, and the investor would get a higher return each year.
Advantages of Triple Net Lease for the Investor
There are a couple of eligibility criteria that the investor must have in order to use a triple net lease as a contract form rent out their properties. The first point is that the investor should have a net worth of $ 1 million as well, not including the primary residence he owns. Or, the investor should have an income of $ 200,000 or $ 300,000 if applying as a joint filer. The second point is, let’s say you are a small investor and you don’t have the prescribed income or equity. Can’t you opt for a triple net lease? The answer is “yes, you can,” but it is subject to a criterion. To participate in this net lease, small investors should invest in real estate mutual funds (REITs) that focus on similar properties in the investor’s portfolio.
The bigger question is why a lessee would accept such a lease that offers the lessor so many benefits. Does the tenant also not want the benefit of the lease? The answer is yes, and the lessee also gets the benefit of the triple net lease. Since the lessor does not need to pay for insurance, taxes and maintenance, the lessee does not need to pay to make a lot of rent for the properties he takes. As a result, the tenant can save a lot of money on rent by accepting such a lease. However, this is the only benefit a tenant gets from this lease. This can often be hidden. You should speak to your attorney before going for any lease so that you don’t get stuck in such a contract. If you have a term like “turnkey” in your lease, the lease is likely to be triple net. So which property is most likely to have a triple net lease? The NNN lease often referred to simply as a triple net lease, is a popular rental structure in the commercial real estate industry. A triple net lease (also known as triple-net or NNN) is a lease contract on a property when the tenant agrees to pay all property taxes, building insurance and maintenance (the three “networks”) on the property in addition to any normal lease payments (rent, utilities, etc.). This rental structure is certainly favourable to the owners, but that does not mean that it is not advantageous for the tenant. The lease gives tenants the opportunity to review the landlord’s operating expenses, and all savings go directly to the tenant. Likewise, is a triple net lease a good idea? The Good: For the tenant, the triple net lease can be Great. A tenant has more freedom with the facility and can better customize a space to use without the capital investment of a purchase. The tenant pays the rent less, as he has incurred other expenses. Related Articles:Summary