If you own income-producing property, you may know how painful it is to lose a part of your income in managing the property. When an investor leases a property to a tenant under a gross lease, the tenant only pays a flat rent which is then used by the investor to pay all operating expenses associated with the property. Because of this, they end up losing a part of their income as well as a considerable amount of time. To get rid of these management responsibilities, investors switch to NNN Lease Investment.
Why NNN Lease?
A NNN or Triple Net lease is a single-tenant arrangement that requires the tenant to pay all operating expenses associated with the property they’ve rented. NNN stands for ‘Net, Net, Net’. Unlike a gross lease, a NNN lease asks the tenant to pay additional expenses such as property taxes, insurance fee, and maintenance cost (together known as the ‘three nets’) along with the base rent. Because of this, NNN investors enjoy a regular flow of income without any liabilities. NNN properties are highly productive and ensure a consistent return. As the tenant is also responsible for paying operating expenses, the base rent in a NNN lease is lightly less than that under a gross lease.
Difference between single, double, and triple net leases –
When it comes to net leases, investors have the option to go either with a single, double, or a triple net lease. The management responsibilities vary in all these leases and an investor must be aware of this while signing the agreement.
As mentioned, a triple net lease requires a tenant to pay three operating expenses including property taxes, insurance fee, and maintenance cost. Similarly, a double net or NN lease requires them to pay two operating expenses along with the base rent. The two operating expenses include insurance fee and property taxes. Whereas, the investor needs to take care of all kinds of maintenance expenditure.
Now you can imagine, what does a single net lease mean? Yes, that’s right. A single net lease requires the tenant to pay either the insurance fee or property taxes and the investor looks after the remaining two expenses.
Why NNN Investment should be your choice?
Consider spending millions on property management in a decade. We reckon it won’t please you. That’s why NNN investment is an ideal option. Let’s find out how beneficial a NNN investment could be through an example. Say you’ve leased a rental property to a tenant under a gross lease. Suppose, the rent on the property is $10k per month. Say you’re investing $2k on operating expenses every month (excluding maintenance). In case the property requires any repair work in a year, that will be added in the operating expenses too. Say it is $2k in this case. Therefore, your annual income would be –
Rent = $120k
Operating expenses = $(24k+2k) = $26k
Profit = Rent – Operating expense
= $(120k-26k) = $94k
Now, consider the same example, but under a NNN lease. Say, the rent is $9k every month. As you won’t be responsible for paying operating expenses, your entire profit will be saved.
Rent = $108k
Operating expenses = $0k
Profit = Rent – Operating expenses
= $(108K-0k) = $108k
As you can see, you’re spending a considerable amount of your income on operating expenses in a gross lease. Whereas, you don’t need to spend a single penny from your pocket under a NNN lease. That’s why you must invest in triple net properties if you haven’t done it before.