Types of net leases
There are standard names in the commercial real estate industry for different sets of costs passed on to the tenant in a net lease. Double and triple-net leases are the most common forms of net leases.[2]
Single net lease (N)
In a single net lease (sometimes shortened to Net or, N), the lessee or tenant is responsible for paying property taxes as well as the base rent.
Double net lease (NN)
In a double net lease (Net-Net or NN), the lessee or tenant is responsible for property tax and building insurance. The lessor or landlord is responsible for any expenses incurred for structural repairs and common area maintenance. “Roof and structure” is sometimes calculated as a reserve amount, which the tenant must pay.
Triple net lease (NNN)
A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance/repairs on the property. In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area. This form of lease is most frequently used for commercial freestanding buildings. However, it has also been used in single family residential rental real estate properties.[3]
Bondable lease (Absolute NNN)
A bondable lease (also called an “absolute triple net lease”, “true triple net lease”, or a “hell-or-high-water lease”) is the most extreme variation of a triple net lease, where the tenant carries every imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor is it permissible for rent to be abated under them.
The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond. An example of this type of lease would be a sale-leaseback arrangement in which a retailer leases back the building it formerly owned and continues to operate its business at the location.
Economics of Triple Net Leases
Typically, triple net leases (NNN) are ‘equity investments’, rather than ‘cash flow investments’. For example, the investor will finance a significant portion of the purchase price on a property and pay the resulting mortgage with the rental income. There is usually a small amount left over as monthly profit for the investor (positive cash flow), but the greater investment payoff comes from the tax shields afforded to the investor through the use of leverage or debt. The property is then sold after a period of time when equity has built up to exceed expectations.
Why use Net Leased Single Tenant Properties for Investments?
Investors buy net leased NNN single tenant properties for a variety of reasons such as:
- absence of management responsibilities,
- a long-term lease,
- credit- worthy high quality tenant,
- stable cash flow,
- attractive financing,
- equity growth,
- unique tax benefits and,
- capital gains.
Triple net NNN lease commercial investment property are like corporate bonds and are known to be one of the safest investments with predictable income, in commercial real estate investing. The investor in corporate NNN property, not only benefits from the higher yields than bonds or CDs, but also benefits from stable income for a defined time period, equity growth, and unique tax incentives depreciation on improvements and more.
NNN properties offer the benefit of little or no management responsibilities, as the tenant pays for most, if not all, of the expenses according to the terms of the lease. In Triple Net, (NNN) or (Net Net Net) lease tenant pays for the net of taxes, the net of insurance, and the net of maintenance.
Single Tenant NNN properties are typically leased to a single tenant business for a long term, often 10-25 years. Therefore, lenders are motivated to provide very attractive financing. Due to a long term lease, Triple net leased tenants generally have a vested business interest to make sure that a property is well maintained and is sound for business purposes. They frequently make significant property improvements at their own expense to enhance the real estate ,over time, in order to be more successful in the underlying business.
What three things should I know before investing in any NNN properties?
1) Market Feasibility: does the forecasted supply and demand relationship for the property in the selected location indicate success?
2) Location and Site Feasibility: does the location and site support the project adequately?
3) Financial Feasibility: do the projected financial statements indicate sufficient profit commensurate with the risk?
Main factors in pricing triple net (NNN) investment properties
- A) The financial strength of the guarantor of the lease
B) The specific location of the property
C) The remaining length of the lease term and the periodic increases in the rent
D) The financial performance of the property
We provide our clients with all of the information they need to make a great decision, prior to the issue of a Letter of Intent. We will convey, upfront, to our clients: tenant credit information, store sales, lease terms, options, renewal rates, rent escalations, location analysis, site analysis, market analysis, demographic data, cash on cash returns on investment, internal rate of returns after taxes, risks, likes, dislikes and so on. We will then strategize on how to proceed on making a best offer. It is our goal to build a solid relationship of trust with our clients and keep them updated on net lease investments, even though an investment is not imminent.
At www.nnndeals.com we pride ourselves in above-and-beyond client service. We have access to an extensive inventory of triple net single tenant properties for sale and relationships to find you exactly what you are looking for such as:
7- Eleven, Advance Auto Parts, Applebee’s AT, Autozone, Bank of America , BB, Best Buy, Bed Bath & Beyond, Blockbuster, BP, Burger King, Chase Bank, Chevron, Chili’s, Citibank, Costco, CVS, Dollar General, DaVita,Exxon Mobil, FedEx, Food Lion, Foot Locker, Gap, Goodyear, Home Depot, Jack in the Box, JC Penney, Jiffy Lube, Key Bank, KFC, Kindercare, Kmart,Kohl’s, Lowe’s,McDonald, Nordstrom, Office Depot, Office Max, Olive Garden, Pep Boys, PetSmart, Pizza Hut, PNC Bank, Popeyes, Radio Shack, RBC Bank, Regal, Rite Aid, Ross Stores, Ruby Tuesdays, Safeway, Sears, Staples, Starbucks, Shell Oil, Taco Bell, Target, T-Mobile, Verizon, Wachovia, Walgreen, Wal-Mart, Wells Fargo, Wendy’s, Whole Foods,etc.
Please contact us if you are buying or selling a net leased property. We get results. Email: info@nnndeals.com
