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What is a Triple Net lease? Things You must have to know

A triple net lease for sale (triple-net or NNN) is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities. In contrast, in standard commercial lease agreements, some or all of these payments are typically the responsibility of the landlord.

NNN properties for sale are just one type of commercial property net lease. A single net lease requires tenants to pay property taxes in addition to rent, and a double net lease typically tacks on property insurance.

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Characteristics of NNN

With a triple net lease (NNN), the tenant agrees to pay the property expenses such as real estate taxes, building insurance, and maintenance in addition to rent and utilities.
Triple net leases are commonly found in commercial real estate.
Triple net leases tend to have lower rents because the tenant assumes ongoing expenses that would otherwise be the responsibility of the property owner.
Other net leases are a single net lease, in which the tenant pays property taxes, and a double net lease, which includes property taxes and property insurance.
Triple net leased properties have become popular investment vehicles for investors because they provide low-risk, steady income

How NNN properties lease work

In commercial real estate, a net lease is a lease in which the tenant is required to pay a portion, or all, of the taxes, fees, and maintenance costs for a property.

If a property owner leases out a building to a business using a triple net lease, the tenant is responsible for paying the building’s property taxes, building insurance, and the cost of any maintenance or repairs the building may require for the term of the lease. Because the tenant is covering these costs, which would otherwise be the responsibility of the property owner, the rent charged in the triple net lease is generally lower than the rent charged in a standard lease agreement. The capitalization rate (“cap rate”) is the expected rate of return on a commercial property. The cap rate, which is used to calculate the lease amount, is often determined, in part, by the creditworthiness of the tenant.

Types of Lease

Triple net leases NNNs are just one type of commercial net lease.

Double net (NN) leases are also common in commercial real estate. In a lease like this, the tenant pays two instead of three obligations: property taxes and insurance premiums in addition to the rent. The base rent— payable for the space itself—is generally lower because of the additional expenses the tenant must bear. All maintenance costs, on the other hand, remain the responsibility of the landlord, who pays for them directly.

Single net (N) leases are not as common. Here, the landlord transfers a minimal amount of risk to the tenant, who pays just the property taxes.

Calculation of Triple Net Lease

There are various ways that the amount of a triple net lease can be calculated. Sometimes landlords will add up all the property taxes, insurance, maintenance expenses, and common area expenses for a building and divide the total by 12. This number is the monthly cost. This process is simplified when only one tenant is leasing a building. The monthly base rental amount is typically calculate base on a rate per square footage.

Traditional Investment

Traditional investment is a kind of investment in which you make investment into a well-known asset with the hope of capital appreciation, dividend and interest earning.

Types of Traditional Investment

There are various types of traditional investment

Bonds

Cash

Real estate

Shares and stocks

Benefits of Investing In A Net Lease Property Over Traditional Investments

There are many benefits of investing in net lease property over traditional investment these are some important benefits.

Safety:

First and foremost, net lease properties are consider safer than traditional real estate investments. This is due to the fact that cash flow is much more predictable than with multifamily or retail properties (which can suffer from high tenant turnover). Additionally, the fact that the tenant is responsible for all operating expenses means that they have a vested interest in maintaining the property.

Minimize the Impact of Market Volatility

When you diversify your portfolio by investing in different sectors and different asset classes, it reduces the impact of market volatility on your investment because you own investments across different funds, therefore risks owing to specific industries or businesses is lowered.

Higher Yields:

By comparison, net lease yields are higher than those of the 10-year Treasury bond. In fact, yields have been steadily rising over the past several years, as most net leases have provisions that allow for rent increases usually tied to inflation (CPI).

Credibility:

The caliber of companies typically occupying triple net lease facilities means that there is a higher level of creditworthiness overall when compared to other investment options. This also means less risk in terms of potential vacancies.

Getting Into Lease Investments

Net lease investments are a passive source of income that by passes the burden of maintaining properties and dealing with insurances and taxes. A triple net lease also refer to as NNN lease is a lease agreement whereby the tenant, as the lessee takes responsibility and becomes accountable for the expenses arising on the asset is lease along with the agreed rent. In NNN properties, the rent is typically lower than market rate of similar properties. The lessee takes responsibility for the taxes, maintenance, upkeep and building insurance.

By searching, you can find NNN properties for sale which you can add to your investment portfolio and achieve the benefit of diversifying your portfolio. Triple net lease as a real estate investment is a reliable source of income and is a niche industry with special requirements, and the investor earns money every month throughout the duration of the lease. To evaluate net lease investments, there are several factors you should consider. One is the location because location matters. Ensure that there is demand for the location you choose and find nnn for sale that is suitable for your investment needs.

The property is another important factor. Find a property that is in good condition such as a solid structure with a well-maintained building. Check the facilities around the property to ascertain if it will be easy to find tenants who are willing to take up the nnn lease.