Triple Net Lease Investment Properties, also known as NNN Lease properties are one of the most common kinds of commercial real estate. These properties seem simple to investors and hence are the top amongst a slew of widely preferred, realty, investment options. It leaves the entire burden of expense and operation on the tenant rather than the owner. Investors give preference to NNN investment properties as all they have to do is: bookkeeping, tax returns, and deciding when to refinance the property. Typically, investors want and expect assured income with little to no burden of management. However, as an investor, one needs to consider the benefits versus certain risks while making this investment:
Benefits of Triple Net Lease Investment Properties
Predictability: After signing the net lease agreement, the parties get the structure and the terms of lease for the entire term. This clarifies the amount of the rent and income per year and for the entire term. The investor benefits greatly because even if the operating tenant entity goes bankrupt, he is liable to pay the amount under lease, owing to signed personal guarantees included in the NNN lease.
Stability: Choosing an investment grade or “good” credit tenant, contracted within a long-term net lease greatly minimizes the default-risk. Landlords don’t have to worry about finding new tenants every year and having their buildings vacant for months at a time.
Simplicity: The owner does not have any responsibility toward management or any property maintenance. Hence it makes NNN lease property ownership very easy.
Financing options: With most real estate properties, loans are written against the value of the property. NNN single tenant properties, on the other hand, are a little different. Because a NNN single tenant property is also collateralized against a tenant’s credit as much as against the intrinsic value of the property, investors have greater financing options available to them.
Risks of NNN Investment Properties
Tenancy Risk: When a tenant’s credit gets downgraded due to financial mismanagement, the property’s value also falls. When the tenant is unstable the tenancy risk factor, increases and conversely. Further, an investor needs to understand the risk of default, and the degree and extent of contribution of underlying franchise contracts to tenancy risk.
Market risk: Before finalizing an investment property, due diligence research is a pre-requisite. Investigate the property’s financial history and its future scope in light of the real estate market and the underlying business markets to which the tenants are affiliated.
Expense Risk: to the extent that tenants are responsible for operating expenses of the property, the risk is that tenants won’t maintain the building sufficiently, thereby eroding the overall value of the NNN lease property.
Leasing/Contract Risk: short term leases, the absence of adequate rent increases, termination, assignment, and destruction clauses in tenant/owner agreements – are some major potential components of leasing risk that need to be closely examined by any investor in a Triple Net NNN lease investment.
Considering all these benefits and risks, investors will find that investing in Triple Net Lease properties is very appealing. Investors looking for a stable, passive, income will greatly benefit from investment in NNN lease properties by contacting your expert advisors at the Triple Net Investment Group.
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