To real estate investors, NNN lease properties are quite lucrative. However, investing in NNN lease properties is not as simple as it looks at first. You must make decisions with due diligence, as there is no room for change once you have signed the lease terms.
The Nuts and Bolts
A triple-net lease means the tenant has to bear the burdens of all the relevant operating costs of a property. These operating costs are generally: maintenance, taxes, and insurance. Moreover, the tenant pays monthly rent as well. The lease however limits any capital expenditures. Retail, industrial and office, all of these are examples of NNN lease properties.
In comparison to traditional real estates, NNN lease properties have many benefits, like tax benefits and appreciation. However, more and more investors prefer NNN lease properties to get rid of various management duties.
The lease also accommodates for a long-term steady income stream. Moreover, they offer a low tenant turnover rate, which allows you to reduce the cost of lease and marketing. And, prominent anchor tenants increase predictability and decrease risk.
Since these leases are a fairly stable investment, banks usually offer soft terms like lower down payments and mortgage rates. NNN lease properties are a viable investment, especially if you want to sell existing properties and use a partial payment to reinvest in 1031 exchange to defer capital gains tax.
NNN lease properties have some drawbacks, as well. If your rent fails to keep up with market rates, inflation could cause a severe problem. The whole thing worsens when the tenant can extend a lease over a longer period. Selling a property bound by an extended lease and comparatively low rent has no bright prospect.
Negotiate with care
As long as you negotiate tactfully, NNN lease properties will pay off just good. Besides initial risks, also keep in mind some other factors like the likelihood of profitability, investment objectives, and the tenant’s credit rating.