Investing in NNN properties (or triple net leases) is very lucrative. However, it’s quite different from most other forms of real estate Investments.
Investopedia defines a triple net (NNN) lease as a lease agreement on a property where the tenant or lessee agrees to pay all the property’s expenses, including real estate taxes, building insurance, and maintenance.
Macrotrends ranked NNN at about 180 million dollars in revenue in the United States. Interestingly, this result shows only data from the last quarter alone.
Therefore, it’s clear that the NNN property market will expand further as many investors will soon start exploring it to gain profits. However, before one delves into the world of NNN properties, there are certain things you should have in mind.
Features of an NNN Property Lease
We earlier saw that in triple net properties, the tenants handle the three net expenditures. So, what exactly are these costs?
Below are the features of an NNN property lease:
- Insurance Premiums: The insurance premiums refer to the amount of money the tenant pays to an insurance company for protection against risks. It’s paid regularly depending on the agreement – e.g., monthly, quarterly, or annually.
- Property taxes: The tenant also covers the taxes paid to the government on the property. This payment is made every year.
- Building maintenance: Building maintenance involves the day-to-day expenses that keep the structure in good shape. It requires cleaning, plumbing, etc. Roof maintenance alongside some special structural expenses is taken care of by the landlord.
Benefits of The Triple Net Lease System
The triple net property lease system comes with many benefits. They include:
Dependable Stream of Income
The income obtained from Triple Net Lease properties is very organized, stable, and dependable. The reason is that tenants are required to pay rent at the end of each month, meaning that as a landlord/investor, you know exactly when you’ll receive the check.
Most NNN property tenants sign in for leases ranging between 7 to 10 years or even more. So as long as that period hasn’t expired, you can accurately calculate the income you’ll get from your property. This advantage is beneficial as it enables you to make more investments during these periods without fear of your income flow ceasing.
Investments Are of a Low-risk Nature
When it comes to triple-net leases, tenants who rent properties are usually financially stable. In most cases, they have credible credit accounts and have little chance of disappointment when making payments.
Asides from that, there’s also the fact that as the landlord, the only expenses you’ll cover are major structural maintenance expenses such as roof repair and building reinforcement. The tenant handles day-to-day expenses on the building’s maintenance, taxes, and other utilities.
Since your profits majorly depend on whether or not your client/tenant makes enough money, your property will most likely be in an ideal location. Most times, you’ll end up in big cities where there’s a large population density. Life in these cities comes with its advantages. For example, you should consider going for NNN leases for sale in California as many people reside there, providing you with more opportunities.
Ease of Equity Build-up
Despite the slight expenses you’ll incur – compared to the profits you’ll make – while being a landlord; you’ll get the extra resources needed to build up your equity. These additional resources make the lease of NNN properties very valuable as you’ll have to worry about fewer financial responsibilities than when you are the one covering all the costs.
Cons Of NNN Property Lease
NNN investment comes with many benefits. Nevertheless, it also has some perks. Among these demerits are:
The Property Can Be Without Use for a Long Time
Sometimes, when a building is designed for a particular purpose, it becomes tough for you to release it when the initial tenant leaves.
For example, if the original tenant rented the building as a hospital, it won’t be easy to get customers from the health industry. And the longer the building stays vacant, the less attractive it becomes due to wear and tear, hence, bringing up another maintenance issue.
You’ll need to maintain the building in such a case regularly. Perhaps you don’t want to waste time leaving the structure vacant. You can also spend some money on making the building suit a potential customer’s requirement. Of course, it’ll cost you something. But on the bright side, these occasions aren’t too common.
Definite Investment Returns
This point sounds good, but in reality, it means that it’s impossible to add any value to the rent the tenant pays in the initial period. As a result, the investment returns will be the same as when the first tenant used the structure.
Even if the tenant opts for renewal, the value is most likely to decrease as the tenant will begin to ask for a decrease in base rent, especially when it’s above the market rent price. Luckily, you can make some minor, aesthetic enhancements to the structure during the period you’ll be awaiting a new tenant, thereby increasing the rent value.
How to Make Profitable Investments in NNN Properties
To invest in NNN properties, you’ll have to take specific steps.
- Firstly you have to decide on the investment returns you want to receive. Do this by researching the types of NNN properties that most people prefer to rent. A good example is “NNN Jack in the Box.”
- Next, find a good triple-net real estate advisor that will give you quality advice on the steps you should take to obtain the maximum yield.
- Also, consider setting out to buy more than one NNN property. For example, having an NNN 7-Eleven alongside other properties isn’t a bad idea.
- Finally, map out the terms of your agreement with your tenants, and you’re good to go.
NNN properties are of great benefit when acquired. After purchasing and leasing, you’ll get a load of profit and benefits. These benefits include ease of equity build-up, long-lasting tenancy, a dependable stream of income, and low-risk investments.
With this newfound knowledge, you might as well be on your way to becoming a successful investor in the triple-net property lease industry.
Buy NNN Properties will help you on this quest by putting you on the right track. They offer some of the best deals in the business and have agents to help make the entire process less cumbersome.