Why use Triple Net Properties for Investment?
Investors buy net leased single tenant properties for a variety of reasons such as:
- no management responsibilities,
- a long-term lease,
- credit-worthy high quality tenant,
- stable cash flow,
- attractive financing,
- equity growth,
- unique tax benefits and
- good capital gains, etc.
Triple net lease commercial investments are like corporate bonds and are known to be one of the safest and the most solid investments with dependable income in commercial real estate. The investor in corporate NNN property, not only benefits from the higher yields than bonds or CDs, but also benefits from dependable steady long term income, equity growth, and unique tax incentives such as 1031 exchange in case of the sale, 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.
Economics of Net Leases
Typically, net leases, especially NNN properties, 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 lessee’s monthly owed rent. 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. The resulting property is then sold after a period of building up equity.
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. Whereas triple-net NNN leases are the most common form of net leases, there exist also Double N (NN), Single (N) leases, and Absolute NNN also. All of these leases sometimes can also appear in modified forms:
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 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.
Absolute NNN: A bondable lease (also called “absolute triple net lease”, “true triple net lease”, or “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. 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 leaseback arrangement in which a retailer leases back the building it formerly owned and continues to run the operate its business at the location.
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.
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. Single Tenant NNN properties are typically leased to a single tenant business for a long term, often 10-25 years. Therefore banks due to minimal risk of investments are motivated to provide very attractive financing. Due to a long term lease, single net leased tenants generally have a vested business interest to make sure that a location is well maintained and is attractive for all customers. They frequently make significant property improvements at their own expense to enhance the real estate over time in order to be more successful with their customers.
Note that, these additional risks transferred to the tenant 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.
3 THINGS TO KNOW before INVESTING IN NNN Property
1) Market Feasibility: does the forecasted supply and demand relationship for the property in the selected location indicate success?
2) Location and Site Feasibility: will the location and site support the project adequately?
3) Financial Feasibility: does the projected financial picture indicate sufficient profit with the risk?
PRICING NNN PROPERTY
The following considerations are a must when pricing NNN property investments:
a) The financial strength of the guarantor of the lease
b) The specific location of the property under consideration
c) The remaining length of the lease term and the periodic increases in the lease
d) The financial performance of the specific property under consideration
At the Triple Net Investment Group we have access to an extensive inventory of triple net tenant properties for sale and the relationships to find you exactly what you are looking for, such as:
7- Eleven, Advance Auto Parts, Applebee’s, AT&T, 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, KeyBank, KFC, Kindercare, Kmart, Kohl’s, Lowe’s, McDonald, Nordstrom, Office Depot, Office Max, Olive Garden, Pep Boys, Pet Smart, Pizza Hut, PNC Bank, Popeye’s, 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 considering buying or selling Triple Net Properties, or unhappy with your present set of advisors!
We gladly provide our clients with all of the information needed -upfront- to make an informed decision, before a Letter of Intent is issued:
- tenant credit ratings,
- store sales,
- lease terms,
- options,
- renewal rates,
- rent escalations,
- location analysis,
- site analysis,
- market analysis,
- MSA demographic data,
- cash on cash returns on investment,
- internal rate of returns, after tax,
- 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 with our clients and constantly keep you updated on net lease investments opportunities, even though the need to transact may come later in time!
We get results. Email: info@nnnig.com or Call: 202-361-3050
