NNN properties are attracting many investors looking for good returns from commercial real estate investments.
A triple Net lease is a different kind of lease agreement, therefore, many investors are concerned if it is a wise financial decision to invest in NNN properties.
In this guide, we would like to answer all the concerns to put your worries at ease. After knowing all aspects of this investment, you can determine if it is fruitful to invest in triple net leased properties.
What Are NNN Properties?
NNN stands for Net, Net, Net, NNN lease is a type of commercial real estate lease making tenants responsible for some of the property expenses besides rent.
Each of the “Net” in NNN properties is for a specific expense paid by the tenant instead of the investor. The acronym TIM is used to describe the expenses in lieu of NNN properties.
TIM is an abbreviation for Taxes, Insurance, and Maintenance, therefore, the tenant is expected to pay real estate taxes, building and liability insurance, and the repair and maintenance of the property.
How does Triple Net Properties Investment work?
Investors find and buy commercial real estate property in a prime location with high traffic, good visibility, and easy ingress/egress. Once you have bought the desired property at a good location, enter into a triple net lease properties agreement with the tenant after checking his financial creditworthiness.
The tenant is bound contractually to pay the rent as well as the property expenses including a proportionate share of taxes, insurance, and maintenance. NNN investments are long-term and pretty easy to manage without the need for a property manager.
Benefits & Drawbacks of NNN Investments
Here are some pros and cons of investing in NNN properties
Pros
- Income – Similar to other commercial real estate properties, NNN assets ensure good returns and a steady stream of income for the owners.
- Stability – Triple Net lease agreements are long-term, generally over 10 years, therefore, providing income stability for a long period.
- No Burden of Expenses – The investor does not have to bear any expenses as the tenant is paying operational expenses, property taxes, insurance as well as costs for repair and maintenance of the building.
- Rent – Besides paying the property expenses, the tenant also pays rent which gradually increases over time.
- Property Management – The investor enjoys all the benefits plus the steady income without the hassle of management. The tenant is responsible for paying taxes, insurance installments, and maintaining the property.
Cons
- Vacancy Risk – NNN properties are occupied by one tenant, so there’s a vacancy risk, the rental income will become zero if the tenant decides not to renew the agreement.
- Renovation – If the previous tenant opts out of renewing the lease, it is extremely expensive to renovate the building for new use.
- Neglect – Often, tenants do not maintain well and fix all the issues. They neglect the small repair till they grow in magnitude over time. The tenant may vacate the space by the time these issues become serious.
In Summary
NNN properties are a good investment option for investors prioritizing stable cash flow, passive income, and relatively low management hassle.
