Triple Net (NNN) Lease properties are ideal for a passive investor or a 1031 exchange client looking to own real estate. They can be an owners dream from the standpoint they are simple investments to manage.
Additionally, if you work in a different industry and want to invest in various real estate holdings without the hassle of property management, triple net (NNN) lease properties should be a prime target.
Triple Net (NNN) Lease Properties
With a Triple Net (NNN) Lease property, the tenant pays the following expenses:
- Basic Rent – Tenant will pay the fixed rent as negotiated in the contract
- Taxes – Tenant pays all real estate taxes on the property. This is valuable as tax amounts may increase frequently
- Maintenance – Tenant pays Common area maintenance on the property
Triple Net (NNN) Lease properties are often long term and come can be Corporate backed. There are many commercial NNN properties for sale that often include 15 year lease terms.
Challenges of Triple Net Lease Properties
While triple net lease properties offer simplicity, there are certain factors to consider:
- Difficult to Re-rent – Triple Net Lease properties often contain substantial rents and routine payments. Finding another NNN tenant can be challenging in the event your tenant goes out of business
- Kickout Clauses – Certain Triple Net Lease Properties contact “Kickout” or “Out” clauses in the contract. If a certain store is not performing and meeting a sales threshold, the tenant may have the ability to exit the lease with six months notice
- Large Spaces – Triple Net Lease Properties can often include big commercial space locations. If the tenant exits the property, it may take a lengthy amount of time to find a new tenant to take over the space
When selecting a triple net lease property, JSG Realty recommends analyzing a few additional items:
- Location – In the event of a vacancy, how difficult will it be to find a new tenant? Many triple net properties can be located in remote areas that are destination attractions for customers. When a large, multi-national tenant occupies a location, customers from the surrounding areas will drive to visit. However, if the space becomes vacant, it may be difficult to attract a new business to commit to your investment property. Make sure to analyze traffic flow, miles to the nearest City, stores in the vicinity and other important criteria. For our clients, JSG Realty provides a list of property attributes to consider.
- Taxes – A second vital detail to consider is property taxes. Again, in the event of a vacancy, what will be the annual carrying cost for the owner of the property? Keep in mind, a large, commercial, triple net space, may take 6 months to one year to rent
- Financial Reserves – Every investor must know there financial limits. How long can the owner afford to keep the asset if a vacancy occurs. Is there a mortgage on the property? Is this an all cash purchase? These factors will play a great impact on the long-term success of your investment
If you would like more information on Triple Net Lease properties, please contact us at JSG Realty for more information.
We are available to assist with all of your Real Estate needs and can help locate triple net properties throughout the United states.