Triple net lease has become a popular investment opportunity for real estate investors seeking stable cash inflow with low risks. It typically involves fully leasing out multiple commercial properties in your portfolio collection.
But before investing in a triple net lease, it’s essential first to understand the basics of this type of real estate investment.
Triple Net Lease
What is Triple Net Lease?
A Triple net lease (also known as NNN or Triple-Net) is a lease agreement in which the tenant (lessee) agrees to pay all the building’s expenses during their stay. These include maintenance cost, property tax, and building insurance.
Since the tenant takes these financial burdens off the landlord’s shoulders, the rent agreed upon will typically be less than when the landlord pays for any or all of those costs (as in a standard lease agreement). But this offers the landlord low risk as they get a steady income without paying so many ongoing expenses (including property damages) when the building is occupied.
What are the benefits of purchasing this type of property?
This type of lease offers financial predictability and low risk to the investor. As a landlord, you know exactly how much to expect during the lease period. This is because you wouldn’t be responsible for tax, repairs, maintenance, or any other property expenses.
Therefore, even though the rent is lower, it becomes an excellent choice for investors looking for a stable income with minimal risk. You can find a Triple net lease for sale, purchase it, lease out, and also enjoy the possibility of capital appreciation of the underlying property in the future.
Who pays the utility bills?
Most often, the tenant also pays for utilities and any overhead costs. However, this can be personalized since every lease agreement is different.
Generally, the tenant is responsible for all expenses and management of the property. They can choose to personalize it to their taste during their stay.
How is the lease amount calculated?
The lease amount is typically calculated based on the capitalization rate, determined by the tenant’s creditworthiness. You can also choose to calculate based on market conditions.
What if you’re worried about the late payment of tax and insurance?
Late payment of tax and insurance can incur penalties on the property, and you don’t want that. To avoid such risks, you can make these payments, not with your money but with your tenant’s.
What is the landlord responsible for?
The landlord in a triple net lease agreement plays a minimal role in management. However, they are tasked with structural and roof-related maintenance and repairs.
How do you use the 1031 Exchange?
You can maximize your triple net lease investment by combining it with the 1031 Exchange. This exchange allows you to sell commercial income real estate with all associated income taxes deferred by purchasing a similar property to the one you just sold.
Bottom Line About Triple Net Lease
This can be a great investment choice for real estate investors. However, remember that it is for commercial properties like office buildings, restaurant chains, shopping malls, and not personal property.