A triple net lease (NNN) is an agreement under which the tenant or lessee is responsible for paying all three operating expenses – property taxes, insurance, and all maintenance – in addition to the base rent associated with the property. NNN leases are usually single-tenant arrangements under which properties are leased to tenants with high credit ratings (e.g. single building with CVS as the only tenant). NNN properties are mostly rented by corporate credit tenants such as discount stores, fast food restaurants, auto parts outlets, and pharmacies.
Benefits of NNN Investment –
Predictable, long-term cash flow
Triple net leases are long term lease agreements that may lock the tenant for 10-15 years. NNN investors receive a flat rent after the operating expenses are paid by the tenant, which creates a predictable monthly cash flow that is not jeopardized by future increases in operating expenses or capital expenditures.
Protection against inflation
Besides the strong income security that comes with a NNN investment, investors can expect frequent rent increases during the lease period, which protects against inflation.
Little-To-No property management responsibilities
Under an absolute NNN lease, the tenant has complete control over the property they’ve rented and are responsible for all day-to-day management responsibilities. Consequently, the investor or property owner doesn’t need to bear the burden of property management.
Strong tenants with high credit ratings
The majority of NNN tenants are big established companies that look to conserve some capital through leasing properties, instead of purchasing their own. Reserved capital enables these companies to invest in other critical aspects of their business, which may include acquisition, debt payments, or expanding to other markets. While an investment-grade credit rating does not ensure against risks, investors may benefit having strong tenants with high credit rating.
Read your agreement carefully as Net leases may have variations…
Investors often make mistake in analyzing their net lease agreement and you should be aware of this. As not every net lease requires the tenant to pay all operating expenses, it’s important that you check your net lease agreement carefully. Apart from a NNN lease, other net leases include –
- Double net lease – A double net or NN lease is a single-tenant arrangement that requires the tenant to pay two operating expenses along with the base rent. While the tenant is responsible for paying the insurance fee and operating expenses associated with the property they’ve rented, the investor looks after all kinds of maintenance expenses.
- Single net lease – Unlike a NNN lease, a single net lease requires the tenant to pay only operating expense along with the base rent. Here, the tenant either pays the insurance fee or property taxes. Whereas, the investor is responsible for paying the other two expenses.
- Modified net lease – Under a modified net lease, the tenant is required to pay the two operating expenses – insurance fee and property taxes. Whereas, the maintenance expense is equally divided between the tenant and investor.
While a NNN lease is favourable for investors, tenants may like a double net or modified net lease. It’s recommended that you consult a NNN advisor before investing, so that, you can get aware of all potential risks that may accompany NNN investment.
To speak to a NNN advisor, you can call 888-993-2835 or email us at email@example.com