NNN or Triple Net lease property is not a new concept for commercial real estate investors, brokers, landlords and tenants. Yet, it is one of the most misunderstood terms by many NNN brokers and NNN investors . To be clear about the different sorts of NNN leased properties a basic understanding of net lease properties is proposed below: .
Types of Net leases in the United States
Commercial real estate tenants, investors, brokers, owners and landlords have a wide array of net lease property (N, NN, NNN) options available to them. Here are some of the most common ones :
- Single Net (N) Lease: Single or N lease is the most basic type available in the commercial real estate market. Here, the N lease tenant is responsible for paying both the rent as well as the associated property tax. Lesser known as compared to other net lease types, it enables the commercial property landlords and owners to pass on incidental property expenses to the tenant .
- Double Net (NN) Lease: Double net or NN lease, is the most popular of all the options available in the market. Under this net lease contract, a tenant needs to pay both the building insurance as well as property taxes, in addition to the rent. In this case, maintenance expenses lie entirely with the landlord/owner. In addition, the commercial property landlord or owner also bears the costs of structural repairs. .
- Triple Net or NNN Lease: This type of net lease is the favorite of NNN Property landlords, owners and investors. s. It requires the NNN tenant to pay both the incidental expenses as well as monthly rent. Real property tax, maintenance, regular repairs, and building insurances are some of the additional charges borne by the NNN lease tenant .
- Bondable or Absolute Net Lease: Bondable net lease or absolute triple net NNN lease represents the extreme case of a NNN lease property. Here, the Triple Net tenant has to completely bear all property-related expenses. In this way, the NNN tenant assumes responsibility all transparent and unknown property related costs. . Damage repair costs incurred on account of accidents, tourism or vandalism are a good example of “unknown” property costs. This type of lease needs the Triple Net tenant to abide by stringent contractual guidelines, and hence a prospective NNN tenant should undertake an Absolute Triple Net lease only after considerable due diligence. .
What does it mean when someone refers to an NNN lease?
A NNN lease, also known as a triple net lease is the lease structure wherein a tenant is held responsible for making payments of rent and some or all of the costs of operating, maintaining and owning a commercial property. Commercial real estate professionals generally refer to it as a “turnkey” investment. Property owners are absolved of bearing a commercial real estate property’s operating expenses in a Triple Net lease.
Risks of NNN lease properties
Although commonly and mistakenly considered risk-free, tenant credit is the most significant risk to understand, when investing in or owning a NNN lease property.
Benefits of NNN lease properties
A NNN lease property comes with numerous advantages for landlords and offers a steady and predictable income flow for a long time. Usually, the length of an NNN lease ranges from 10 years to 15 years. Thus, landlords do not need to rush to find tenants every year! The other advantages of an NNN lease are as follows:
- Stable Cash Flow: As NNN properties are leased for a long term, landlords can get a stable flow of rental income. The leases typically span for 10 to 20 years so the Triple Net Lease Buyers are guaranteed stable, positive, cash flow until the lease expires.
- Reduced Maintenance Liabilities: Another superb advantage of NNN lease properties is the minimal maintenance and repair responsibilities on part of the landlord. In addition to the monthly rent, the tenant in an NNN lease property is also responsible for all operating expenses related to the Triple Net leased property. Starting from building insurance premiums, property taxes, to all the maintenance and repair costs – the tenant looks after all possible costs associated with operating and maintaining the property. Thus, landlords are now involved passively, rather than actively, in the management of the property, leaving them plenty of time and energy to focus on lifestyle or other projects. .
- Financing Options: Whether personal or bank lender, all lenders typically give preference to investors, owners, landlords or tenants of Triple Net properties. This is because of predictable cash flows due to institutional grade tenants and long lease terms. Additionally, single tenant NNN lease properties provide a lot more and varied financing options for Triple Net Lease Buyers.
- Simplicity: This is another attractive feature of a Triple Net lease property, which makes it popular among nnn lease investors. The NNN lease clarifies the responsibilities of the involved parties, whether the tenant or the property owners, right upfront. The relationship between the tenant and the landlord thus remains healthy as there are fewer issue of negotiation that are non-standard.
- Tax Benefits: An NNN Buyer can enjoy the ownership of an asset by avoiding capital gain taxes by using NNN lease and depreciation schedules under US Tax regulations as a means of lowering the property taxes.
Please feel free to contract one of the experienced nnn brokers of Triple Net Investment Group Inc with questions before investing.
