The real estate industry is massive, and so are the available investment opportunities. Different avenues exist for entering the market, from commercial buildings to apartment complexes to vacation rentals. However, there are not enough people taking advantage of the investment openings presented by triple net properties for sale, commonly called NNN properties.
Is this your first time hearing about the concept? Don’t worry; I’ll give a brief introduction. Nevertheless, if you have heard of the term, you’re probably looking to buy one or two NNN properties for sale, hence your perusal of this article. Read further to know why triple net (NNN) leases are great investments.
What Is a Triple Net Property?
Throwing aside all real estate jargon, triple net leases or NNN properties are commercial real estate structures that allow a tenant to assume responsibility for all expenses relating to building maintenance, property taxes, and insurance. Thus, these three payments are collectively known as the “three nets”, and the payments go to the landlord alongside the building’s rent.
Mostly common in retail properties and fast-food chains, pharmacies, office outlets, and banks can also utilize this rental approach. The popularity of the investment structure is a testament to its favorable returns.
Why Triple Net Properties are Popular
Triple net leased properties are gaining popularity by the day because they’re a source of low-risk, steady cash flow. Their favorable characteristics set them apart from the single net lease and double net lease as they allow the landlord to hold little to no responsibility over the property.
Most real estate investors desire investment opportunities that are profitable, stress-free and easy to manage. All triple net leases offer these benefits which are not present in the single and double net options.
Since the tax-paying responsibilities are shifted over to the tenant, alongside the building maintenance and insurance, the landlord has little or no responsibility over the property throughout the lease term (usually up to 15 years). Thus, the investor has enough time to explore other opportunities that they find interesting in the industry.
On the other hand, triple net properties give tenants the freedom to customize the buildings to their taste, or in line with the uniformity of their brands. The flexibility of cap rates, taxes and insurance can also be of benefit to the tenant. If you’re wondering what a cap rate is, it is simply the predicted return rate on a commercial property.
Often used to calculate the particular lease amount, the cap rate is generally determined by the tenant’s creditworthiness.
Reasons to Invest in Triple Net Properties
Triple net leases aren’t just profitable real estate ventures that turn in significant returns; they also give the landlord less responsibility for the property, allowing the investor to focus on other ventures. Whether you’re a newbie in the business or a recurring investor, the following reasons are enough to convince you to invest your money into developing an NNN property.
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Low Cost of Operation
In a triple net lease, the tenant bears almost all management costs, leaving the landlord with little to worry about in the property. This situation translates to lesser responsibility and less spending for the property owner. What could be better than this?
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Tax Benefits
The majority, if not all of the taxes, are handled by the tenant of an NNN lease; thus, the real estate investor who owns the property has fewer tax payments. Another perk relating to taxes is the 1031 and 1033 tax-deferred exchange code that permits a triple net property owner to use capital gains to their advantage.
They can reinvest the gains from selling an appreciated NNN property into other real estate projects. Triple net property owners can invest in more significant properties, including more NNN properties for sale, translating to more cash flow. Talk about growing through profits.
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Long-term Tenancy
Most NNN property tenants are business franchises such as 7Eleven, McDonald’s, Bank of America, which require long-term leasing to build credibility and reputation. Little wonder a typical triple net lease contract lasts for at least seven years, with most lasting up to 15 years or more.
This type of contract allows for more income generation for the property owner, considering that the longer a tenant stays, the more the landlord earns.
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Less Risk
NNN leases are reputed to be one of the most secure real estate investments as most single-tenant triple net lease properties for sale turn in steady returns over time. It’s safe to opine that there’s a form of predictability associated with such businesses since they’re among the most well-known organizations and franchises.
Furthermore, an NNN property tenant practically buys all the risks once the contract is signed, and the landlord has little or nothing to worry about when it comes to covering damage or insurance costs.
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Earn More, Stress Less
All the reasons above narrow down to one thing – less stress for the property owner. With taxes, building maintenance costs and insurance covered by the tenant, the investor or property owner has more time on their hands. Most of their time is devoted to seeking more investment opportunities while steady cash pumps into their account.
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Gain More Real Estate Experience
Your primary aim of investing in real estate is probably to grow your income, however, as your portfolio solidifies, so does your knowledge about the business of real estate. The longer you are involved with property management and development, the better your real estate investment skills get. In the end, you become an expert at what you do.
Steps to Investing in NNN Properties
Having shed light on the concept of NNN properties and reasons to purchase NNN properties for sale, here are some steps to take to get your triple net property investment journey started.
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Decide Your Expected Investment Returns
Returns from triple net investments will come in varying forms depending on the tenant, property location, contract, year of construction, etcetera. The above means that no two investments produce the same return – there’s usually a variation in cap rate.
As an investor, be fully aware of what you expect from your investment and don’t settle for less at any cost. If you seek a property with a five percent cap rate, don’t settle for one with a 4.5 percent cap rate. There are plenty of other opportunities to explore in the market, don’t be quick to settle for less.
Before initiating contact with an agent to help you scout NNN properties for sale, you can personally conduct market research to see the nature of the market and decide if it’s favorable for you.
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Find a Triple Net Lease Advisor/Accredited Real Estate Agent
Once you decide on what you want, the next thing to do is contact a real estate agent near you specializing in triple net advisory. Schedule interviews with your selected agents to evaluate their experience and expertise, as their mastery of the market is crucial to successful investments.
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Stipulate Your Tenant Terms and Draft a Contract Statement
What kind of tenant do you want for your building? A fast-food franchise, a multinational company or a bank chain? Companies differ, and so do their credit capacities.
A movie theater franchise with 2000 locations nationwide will be at less risk than a shoe business with only nine sites. Setting a mark or criteria allows you to determine how successful your investment will become.
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Seek the Right Lender
Typically, your lender should be a federally insured bank, a private lender or a credit union. Your best bet will be a federally insured bank capable of providing the amount needed.
Nevertheless, a private lender with accreditation can get the job done, especially if you need the money quickly. Go through the terms and conditions of your loan and be sure that you’re capable of fulfilling your end of the bargain.
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Scrutinize Opportunities and Extend an Offer
By now, excellent opportunities for investment will be on the table, awaiting your perusal and a final pick. Maintain a file of your options for clarity’s sake, doing well to eliminate those that fail to meet the cut.
Compare the properties and look for favorable standout characteristics. Inform your agent of your choices and take action immediately. Don’t dilly-dally.
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Perform the Duties Required of You by the Contract
Now that you have a property and a tenant, it’s time to fulfil your duties as stipulated by the contract. If you’re residing near the property, you can visit to ensure that all is in place for the tenant to move in. Send a representative to do the above for you if you can’t make the trip.
Overall, it’s best to start your days as a landlord on an excellent note to prevent future disputes with your tenant. The property should be in good condition, and all necessary documents should be made available to the tenant.
Final Words
You have now decided to invest in triple net leases or an NNN ground lease for sale, and the “what next” question pops up in your head. After you have decided on what you want out of the investment, your following line of action should be contacting a reputable real estate company near you to help out. But if you’d rather explore other forms of real estate investing such as house flipping, this article on finding an abandoned property will be quite helpful. Good luck!
