What are NNN Properties?
NNN Properties are free standing real estate assets that are leased to tenants for a term – 3 to 20 years – or longer. They offer the benefit of little or no landlord management responsibilities, since the tenant has to manage the property and pay for all expenses such as taxes, insurance, and maintenance/repair costs. NNN leased property is most commonly retail, office or industrial property that is leased to a single tenant with excellent credit rating.
Common Types of NNN Triple Net Leases
- Absolute Triple Net (NNN) – this refers to a lease where the tenant pays ALL operating expenses, including maintenance, repairs, taxes, insurance etc.
- Triple Net Lease (NNN) – is a lease with partial owner responsibilities. The owner is generally liable for the structural components of the building like the roof, foundation, and walls.
- Modified Net Lease (NNN) – the tenant pays either one or two of the 3 “nets” – Taxes, Insurance, and Maintenance. A Double net lease is a good example of this, because the tenant in such a lease pays for taxes and insurance, but not maintenance.
Why Should You Invest in NNN Properties? Top 10 Reasons.
- They can be easily and quickly financed (using other people’s money)
- They are easy to manage, as the Tenant is responsible for taxes, insurance and maintenance
- They are easy to sell, as there are always demand for this type of property
- They are often in excellent locations and are a good source of stable, rental income
- They relieve landlords from management and maintenance responsibilities of the property
- They offer the benefit of increased property value due to tenant made improvements
- They can be willed to heirs, offering income for next of kin, after an investor’s death
- They can be easily used in 1031 exchanges-a tax rule that allows an investor to sell one property and acquire another one, and deferring any taxes on capital gains
- They offer minimal risk with investment grade tenants and offer a predictable, monthly income
- They offer a tax shelter because property depreciation protects a portion of the annual cash return from income taxes
- They appreciate during the term of the lease, thus building equity for investors
Who are Sellers of NNN Properties?
The sellers of NNN properties range from individual investors to Real Estate Investment Trusts (REITs), to lender REO departments or realty developers. However, it is usually developers who sell these types of leased assets to realize their profit immediately through sale of the property as opposed to a develop-and-hold strategy. The other major sellers of such assets include corporations with offices, or retailers of all sorts, and industrial organizations. Corporations now regularly sell and lease back their buildings and land, using NNN leases.
Who are the Buyers of NNN Properties?
NNN properties are commonly bought by 1031 exchange investors. However, institutional investors and their advisors have also become common buyers of NNN lease properties – because they offer stable cash flows. However, individual investors – who are motivated by the tax-deferred 1031 exchange – are out-pacing institutional investors in buying such NNN realty assets.
Things to Consider While Investing in Triple Net Properties
Investing in Triple Net Property is a complex process that requires expertise, experience and knowledge of current real estate market trends. If an investor wants to make safe investments in commercial real estate, certain things must be kept in mind. Make sure you buy property with a tenant that has excellent credit and, the lease permits stable income. Always vet the location of property and thoroughly analyze it. Ensure that the property is free from deed restrictions and encroachments, as these property conditions can greatly impact the value of your estate. NNN leases are generally for 3-20 years, with a 3-10 percent rental escalation every 1-5 years. There are renewal options, when the lease term ends. Thus, review the lease terms very carefully regardless of the labels on the lease such as NNN, or NN or Modified etc.
Obtaining advice from an experienced commercial real estate broker, lawyer as well as an accountant will help you get a clear understanding of the issues related to making comfortable, NNN investments. At Triple Net Investment Group, we are committed to helping you realize all types of NNN transactions. Contact our experts today for all state-of-the-art advice, information, tips and resources on NNN Triple Net Properties!