What are NNN Properties?
NNN Properties are free standing real estate assets that are leased to tenants for a long term of 10 to 25 years or more. They offer the benefit of little or no management landlord responsibilities, as the tenant has to manage the building and pay for all expenses such as taxes, building insurance, and maintenance costs. The NNN leased property is commonly a retail, office or industrial property that is leased to a single tenant with a high credit rating. This type of lease is often used for commercial freestanding buildings.
Common Types of Net Leases (NNN):
- Absolute Triple Net (NNN)– This refers to the lease wherein tenant pays all operating expenses, including maintenance, repairs, taxes, insurance etc.
- Triple Net Lease (NNN) comes with some owner responsibilities. The owner is generally liable for the structural components of the building like the roof, foundation, and walls.
- Other Net Lease (NNN): Wherein the tenant pays one or two of the net lease components such as (Taxes, Insurance, and Maintenance). Double net lease is a good example of this, because the tenant in this lease pays for taxes and insurance, but not maintenance.
Why Should You Invest in NNN Properties? Top 10 Reasons:
- They can be easily and quickly financed (using other people’s money)
- They are easy to manage, as the Tenant is responsible for the taxes, insurance and maintenance cost
- They are easy to sell, as there are always demand for this type of property
- They are often in excellent locations and become a good source of rental income
- They relieve landlord from management and maintenance responsibilities of the building
- They offer the benefit of ownership. Tenant improves the property and leaves all improvements for the owner in the end
- They can be passed on your heirs, even after your are dead or gone. You will be leaving your heirs with something that will continue to earn money for them, even after you are dead.
- You can benefit from a 1031 exchange-a tax rule that allows you to sell one property and acquire another one without being taxed on the cash you make from the sale of the property
- They offer minimal risk risk with investment grade tenants and guaranteed monthly income
- Property depreciation protects a portion of the annual cash return from income taxes
- NNN Properties highly appreciate during the term of the lease, thus building equity for you
Who are the Sellers of NNN Properties?
The sellers of these properties range from individual investors to Real Estate Investment Trusts (REITs), to lender REO departments or commercial developers. However, it is usually developers who sell these types of leased assets to realize their profit immediately through sale of the property as opposed to a finance-and-hold strategy. The other major sellers of such assets include corporations. Companies now regularly deal in selling and leasing back their buildings and land as NNN real estate.
Who are the Buyers of NNN Properties?
Buyers of NNN properties are increasing day by day and it is because of the souring demand for these real estate products. NNN properties are commonly baught by by 1031 exchange investors, but institutional investors and their advisors have also become common buyers of NNN deals- because they offer stable, risk adverse cash flows. However, individual investors who are motivated by the tax-deferred exchange are out-pacing institutional investors in buying such real assets. In fact, an investor is highly motivated to avoid the financial pain of paying a tax on capital gains.
Things to Consider While Investing in Triple Net Properties
Investing in Triple Net Property is a complex process that requires expertise, experience and knowledge of current real estate market trends. If you want to make safe investments in the commercial real estate, you have to keep certain things in mind. Make sure you buy a building with a high credit tenant with stable income. Always check out the location of property and analyze it. Be sure that the property is free from Restrictions and Encroachments, as these can impact the value of your estate. NNN leases are generally for 20 years or so with a 10 percent rental increase every 5 years. There are even renewal options, when the lease term ends. Be sure to review the lease terms very carefully.
However, seeking help from an experienced commercial real estate broker, an advisor as well as an accountant will help you get a clear understanding of the issues related to making NNN investments. At Triple Net Investment Group, we are committed to helping you realize all types of NNN deals. Just get in touch with our experts for the advice, information, tips and resources on Triple Net Properties!