10 Things That Makes a NNN Property a Good Investment
NNN Properties, also known as ‘Triple Net’ is one of the most popular property types in commercial real estate. NNN Properties are usually single-tenant properties leased to solid tenants (big corporations or businesses) with high credit ratings. In this type of property, tenant is responsible for all real estate taxes, insurance, and maintenance tasks. The triple-net deals appear to be the ideal investment, as they are very lucrative properties with no management responsibilities, and offer a long-term lease to a quality tenant, stable cash flow, attractive financing, and the huge tax benefits for the real estate investors.
Here are some crucial considerations you need to look into while investing in NNN properties:
1) Location, location, location- This famous saying holds true for the commercial NNN properties. It’s the number one rule in real estate, and it’s often the most overlooked rule. Make sure the investment property is located in an economically stable and growing area, near entertainment, shopping, other national tenants and near public transportation, health care and jobs and is easily visible and accessible for employees and clients. A good location will enable tenants to stay in the same location for a long period of time and pay higher rents when the lease or the options expire.
2) Tenant- While investing in an NNN property, make sure that the tenant is financially strong and can continue paying the desired rent on time. The lease is NNN with roof and structure covered by the tenant , there is no cancellation clause in the lease and the tenant’s guarantee is good. Make sure to do a solid background check and look into the company’s credit ratings, earning before tax (EBT), store sales and rent to sales ratio. Find out how long the tenant has been in business and how much rent it can afford to pay at max. If the tenant is making money, it will stay there for years and continue paying the rent increases on time without any delay or dispute with the landlord.
3) Return– Most NNN properties promise high return on investment. However, it is important to analyze return as well as risks that come with these sorts of properties. Remember, the higher the risk, the higher the return. Always estimate the expected cash on cash return before and after tax to be sure that the deal makes business sense and the return is decent with risk associated with the investment.
4) Population- The income of a business depends on employment and population factors. Check and find out if the population is decreasing or increasing; are there enough people with good income to support the store business? This will help you determine the stability of the tenant and the income from it.
5) Employment- It is important for an investor to research and find out if there are enough employment and work opportunities in the area before investing. Buying an NNN property in an area with inadequate employment prospect could be a complete deal breaker for the real estate investors.
6) Income- As a wise investor in commercial nnnl properties, you also need to check the income of people living in that particular area (ie; can they pay for the products and services the tenant and/or company is offering?) If yes, then it is well-worth making a investment decision in the triple net properties located in that region.
7) Visibility and Accessibility of the Site- As a wise investor, you must consider the visibility of a site and it’s location; Can the costumers and drivers see the site and enter the parking lot with no issues? The site must also be visible and accessible for employees and clients; Is the property accessible and visible from the main road? These are important questions you may want to consider prior to your investment.
8) Car & Foot Traffic Counts- It is true that the more people see the site, the more business a tenant can expect. Visibility to a large number of people leads to greater promotion and advertisement of a business (tenant). So take car and foot traffic as a key consideration while investing in NNN property.
9) Building Structure, Roof and Parking- Inspect the building, roof and the parking lot and make sure there are no signs of structural damage, roof leaks and there are enough parking spaces for the customers and employees as well as the parking lot being in good shape. The lease must state that the tenant is responsible for maintenance of the roof, structure, and the parking lot.
10) Clean Site and Title- It is important to ensure that the site is environment-friendly and free from hazardous materials. It is advisable to invest in green buildings to ensure safety of employees and customers. Prior to purchase, review phase 1 report, the title and the deed and make sure that the seller and property owner are the same on the lease and the title and that there are no liens and no encroachments and lastly, don’t forget to review the easements and exceptions on the title.
To find out more about how to invest wisely from NNN deals, please contact our highly experienced associates at Triple Net Investment Group- a leading Commercial Real Estate Investment Firm.