8 Things You Must Know About NNN Lease Property Investments

A triple net NNN investment lease property is leased by a tenant responsible for paying rent, taxes, insurance premiums, repairs, and utilities – as such the landlord is more or less, passive(NNN Lease Property Investments). The tenant is also committed to a lease, ranging from 5-25 years. Here are 8 facets that you should know for sure about investing in NNN triple net investment lease property:

CAP RATES:  An investor should be very familiar with the national net lease tenants and the cap rates their NNN leases are traded. The cap rates reflect the security they offer. For example, some national tenants don’t offer rental escalations in the lease.   However, these are financially secure tenants and the chance of them not paying rent is extremely low. Something like a fast-food restaurant that is operated by a franchisee can trade at a higher cap rate but is riskier.   Items like prior tenant performance at that location, market rents, re-leasing, etc. should also be evaluated.

TRUE NNN LEASE:  Often a lease will be called a “triple net lease” for convenience when in fact it is not an NNN lease. Labels like full service, modified gross or triple net,  used by brokers and landlords, will often be at odds with the clauses and legality of the lease.

NOT INCLUDED: While a true absolute NNN lease with a strong tenant can be thought of as a turnkey commercial property from the landlord or investor’s perspective, even an absolute net lease has some expenses that won’t be borne by the tenant(s). 

RISKS & REWARD:  NNN properties can be considered as low-risk investments due to their stable, predictable, and often higher returns.  Although non-investment grade tenants provide a high risk, high reward opportunity, many investors favor national brand, corporate-backed leases for risk mitigation.  

MARKET VALUE: A triple net NNN lease property is determined by the quality and location of the real estate, length of the lease, rent bumps, and, tenant credit.  Remember, triple net lease property values are based on projected future cash flows, which means that the underlying value of the asset may change over time as the duration of the lease shortens.

BOND-LIKE: NNN property leases can be stereotypically guaranteed by a long-term lease at a preset rental rate. As an investor, you will know, with certainty, the amount, timing and duration of rental income. Thus, NNN properties are considered bond-like, investments, due to their resilience in up and down, market cycles(national net lease tenants, Triple Net Investment Group ). 

INFLATED RENT:  Inflated rents in a NNN lease may make the investment return appear highly desirable if not evaluated against changing market conditions. A drop in base rent to match the market will impact resale value which may be less than the investor’s cost basis. 

NEGOTIATIONS: Most all investment-grade potential tenants have very convoluted legal language in their leases.  Beware of negotiating the terms and language of a NNN lease without an expert, legal and brokerage, help.

Call your trusted advisors at the Triple Net Investment Group as you consider your first, second or next NNN property investment. You won’t be disappointed.