Day-to-day management responsibilities in real estate can be annoying. After a certain period of time, some investors tend to stay away from management responsibilities. However, that doesn’t shift the burden of property management from their shoulders. Managing an investment property requires a considerable amount of time and money. Property expenses such as utility bills, property taxes, insurance fee, etc. may take away a significant part of your profit. This is where a NNN investment may prove to be a cure for your stress.
NNN investment eliminates day-to-day management responsibilities…
A triple net or NNN lease is a single-tenant arrangement that requires the tenant to pay all major property expenses instead of the investor or property owner. In a NNN lease, the tenant pays all three major property expenses – insurance fee, property taxes, and maintenance cost. Generally, in a standard or gross lease, the tenant only pays the rent which is then used by the investor to pay off property bills. As a result, a portion of the rent goes in paying off the property bills. However, a NNN lease involves no such thing. Here, the tenant separately pays the property expenses as well as the base rent. As NNN tenants are also responsible for paying the property expenses, the rent in a NNN lease is slightly less than that under a standard lease.
NNN tenants have high credit ratings…
The majority of NNN tenants are established multinational companies such as Walgreens, CVS, KFC, Taco Bell, etc. These companies generally have high credit ratings. In other words, there would barely be any risk of default if you lease your property to these companies. On the other hand, the risk of default is quite significant in a gross lease. This is another reason why investors prefer a NNN lease over a gross lease.
What lies in your agreement, is all that is covered under the lease…
There is a big misconception that every Net lease covers all three property expenses. However, that’s not true. Only an absolute NNN lease requires the tenant to pay all three property expenses – insurance fee, property taxes, and maintenance cost (together known as the three nets). That’s why it’s called a NNN (Net, Net, Net) lease.
On the other hand, there are other types of Net leases as well that require the tenant to pay one or a couple of property expenses, but not all three. A double net or NN lease is a lease structure that requires the tenant to pay two property expenses (insurance fee and property taxes) along with the base rent. Whereas, the investor needs to bear the expense if the property requires any kind of repair.
Another lease structure, known as a single net lease, requires the tenant to pay any single property expense along with the base rent. Here, the tenant either pays the insurance fee or property taxes, whereas the investor takes care of the other two expenses.
Expert’s advice – Be vigilant at the time of signing the agreement
As you can see, there are almost three variations in Net leases. That’s why it’s important that you choose your lease agreement wisely. Make sure to mention all the expenses that your tenant is going to bear throughout the period of the lease. A bit of vigilance, in the beginning, can avert big future risks. In case you’ve no clue from where you should begin with, talking to a NNN advisor may help.
To speak to a NNN advisor, you can call 888-993-2835 or email us at info@triplenetlease.com
Leave a Reply