A triple net lease or NNN refers to a lease agreement on a property in which the tenant promises to pay all the property’s operating expenses, including maintenance, building insurance, and real estate taxes. In addition to the utilities and rental fees. Because the lessee assumes more of the property’s ongoing expenses, NNN leases have lower rent charge than a standard lease.
Tenants benefit from triple net leases because they can customize their space without the capital investment of a new purchase. On the other hand, property owners of NNN properties have a reliable source of income with few overhead costs and reduced role in the management of the property.
But what do investors need to look for when it comes to NNN properties for sale? Find out the answer to this common NNN property investment question below.
Investment Return
Are you looking for rental property investments without landlord duties? Then, NNN properties make up a good investment choice. Add diversity to your investment portfolio and build equity by looking into triple net properties with low-touch, consistent returns.
When looking for NNN properties for sale, it’s crucial to determine their investment returns. Investors need to determine the type of return that makes sense for them and follow these criteria. For example, if you prefer a 5.5% cap rate, never settle for a 5% cap. Research the market to determine where cap rates land and understand the current pricing.
Triple net lease investments come with a wide array of returns, depending on the following factors:
- Location
- Year of construction
- Landlord responsibilities
- Tenant
- Term remaining on the lease
Accessibility Of The NNN Property’s Location
Choose triple net properties in accessible and established physical location with good traffic. Check anchor properties that signal strong traffic. One strategic location is corner locations, but also consider the businesses operating near the triple net lease building too.
Geography And Demography
If you want to fully determine the maximum returns of an NNN property, study its geography and demography, including the following:
- Population Growth: Look for places where population steadily increase and high-growth rates. Great NNN investment opportunities come in locations people are crowding with increasing growth patterns.
- Economic Growth: Check if the place has increasing employment rate with healthy growing economy. Invest in areas where many consumers pool, visiting malls, stores, shops, amusement parks, and restaurants.
- Tenant Demand: The important ingredients for a viable NNN investment property includes tenants demand and tenant turnover rates. Determine the most common types of tenants a NNN property have in relation to its location, and if such type still emerges or declining.
History Of Tenants’ Businesses
It could be very challenging to buy and hold a real estate properties because of landlord duties and operating expenses. But that isn’t the case with NNN lease properties, which will provide good ROI as long as you look for the history of the tenants.
Triple net properties have tenants with long-term leases that range from 10 to 25 years. Review the history of tenants’ businesses. Do they pay rent on time? Have they always been making insurance and tax payments according to the lease agreement?
Taking ownership of an NNN property should be tied up with an investment security. Determine if the tenants will likely continue renting when you already own the property. Check the tenants for good track record in complying with all the terms of the lease.
Recognizable Brands and Companies
Invest in NNN properties with long-term tenants of recognizable brands and companies, such as those running franchise businesses. Established brands attract more customers, securing the NNN property investment’s success.
As an investor, consider choosing NNN properties with tenants that provide essential products and services, still standing even during a recession. You don’t want end up tenants quitting the lease because of bankruptcy issues.
The NNN Property’s Purchase Cost
Understanding your financing as an investor is crucial when investing in a triple net property. Most often, investors have at least US$1 million net worth or yearly income of USD$200,000. Determine how you’ll finance your prospective NNN property, such as a bank loan or other creative methods to purchase the commercial property.
Work with an experienced triple net lease advisor to help you navigate this market so you can choose the best NNN property investment for you with more confidence and success.
Conclusion
NNN properties can provide you with a relatively low-risk investment option to have a long-term, consistent revenue stream. In an NNN lease, the tenants pay a monthly rental fee and operational costs.
Investing in NNN properties for sale entails considering the potential returns, demographics, geographical location, history of tenants’ businesses, and the brand or products and services they offer. Make a smart investment decision based on thorough market research, coupled with actual observations and tenant and customer interviews.
