“Triple net or NNN leases are a type of commercial real estate lease structure in which a landlord can pass on the extra rent expenditures connected with the property to the tenants.”
One of the most widespread forms of commercial real estate leases is the triple net lease. They are also known as NNN leases and are typically Single-Tenant retail properties. In which the tenant is responsible for all expenditures, insurance, and maintenance charges.
When you initially look at a NNN lease, the property deal appears to be an excellent financial opportunity. This is because these properties have no management obligations, produce consistent cash flow, and give attractive financing and tax solutions. Furthermore, a solid Triple Net Lease Single-Tenant commercial property will normally come with an ongoing long-term lease with a recognized, dependable tenant.
Due to the multiple benefits that NNN properties provide, there is a huge demand from investors seeking guaranteed income with minimal management responsibilities. However, although Triple Net Lease properties appear to be a great investment option, whenever investors consider initiating an investment portfolio, they must consider some risks that underlie the venture.
In this post, we will look at the advantages and risks of triple NNN property. But let’s begin with a more positive note.
THE BENEFITS OF TRIPLE NET PROPERTY
-
A PREDICTABLE INCOME
Since the renter is responsible for all property expenditures, changing expenses do not affect the investor’s cash flow.
For investors, this is a very secure and steady source of income. Therefore, provided there is no bankruptcy or default, calculating the rental revenue or payments per year will be fairly straightforward. The framework of this net lease generally comes into the equation when you are about to sign the lease. Only then will the entities be able to learn about the lease’s terms.
-
INCOME STABILITY
Investors generally search for Triple net property for sale to shield themselves. Especially from a declining market by renting it to a solid tenant.
NNN properties are famous to be relatively stable investments due to their long-term lease arrangements. Because they are in a place where a lot of people go shopping and are just next to major corporations, these leases are mostly signed by country-wide businesses. This excellent “tenant quality” reduces the risk that they would be incapable to pay rent. Or also might leave the property regardless of the terms of the agreement.
-
INDIRECT PORTFOLIO DIVERSIFICATION
NNN leasing properties, like other forms of investments, have several advantages. However, commercial real estate returns may not always equate to stock returns. An NNN property adds diversification to an investor’s portfolio. Consider it this way. If an industry grows at a predictable pace and you own a NNN property leased to that business, you gain indirectly from its prosperity.
-
FINANCING
Major lenders can help finance triple net lease properties easily. Banks and other lending institutions regard the reliability of these assets and can readily provide financing. Triple Nets provide consistent and predictable revenue and have dependable renters. That is why lenders consider these properties to be reputable borrowers.
THE RISKS OF TRIPLE NET PROPERTY
-
DEPENDENCY ON SINGLE TENANT
The major risk with a net lease is that if the primary tenant defaults or declares bankruptcy, finding a new renter to replace the old tenant can be exceptionally hard. This is especially important in the case of a loaned property. If a renter vacates the property, the lender still expects payment of their existing debt, which might have to come out of the investor’s pocket or from a saving account put aside for these instances.
-
LOCATION CAN BE TRICKY
It goes without saying that a good location will always attract renters because such locations have huge populations with higher salaries.
Real estate is heavily dependent on location. This is true in the case of net-leased real estate. Real estate is driven by an income stream generated by renters, and having a suitable location allows a landlord to demand a higher monthly rental. Furthermore, these locations provide less difficult and less time-consuming re-leasing opportunities. However, if you choose a less lucrative site, it may not offer you higher incomes.
-
LIMITED UPSIDE POTENTIAL
Because there is so much downside protection built into a net-leased property, there is also a limit to the amount of upside that can be earned. For example, if you contract a renter to a 5 years lease with annual rent increases of 1%, you are safe from a market with slower or even low growth. However, if the local market’s rent increase rate is 3% per year, you will be losing 2% annually owing to the contracted rent. This is something that investors should be aware of and evaluate. Esepcially against the potential benefits of using a contracted net lease.
FINAL THOUGHTS
As with any real estate deal, triple net leases have both advantages and risks associated with them.
A single-tenant commercial Triple Net Lease properties are fairly stable, with long-term leases, and are an excellent income source for anyone looking for consistent cash flow with little to no repair and administration participation.
However, investors should not overlook the fact that any triple net investment property involves some level of risk. That’s why they should consider the above-mentioned potential risks.
WE PROVIDE
If you’re thinking about investing in Triple Net Lease commercial buildings and need a trustworthy lender, we’ve got you covered.
Hasanov Capital is a major provider of residential or commercial real estate finance solutions. Hasanov Capital provides appealing long-term financial solutions for stable rental portfolios, as well as credit lines for new purchases. They have a proven track record and a commitment to the sector that you won’t find elsewhere. Their loan officers are residents of the communities we serve. They eat at the same food shops as our clients, fill up at the same gas stations, and live our lives in the same way.
They have a strong interest in ensuring that each loan is closed as smoothly and effectively as possible. if you want to get financing for your real estate investment plan, call now!
