Managing an investment property isn’t an easy affair. That’s why the majority of investors hate it. When an investor leases a property to a tenant, all they look up to is the rent they would get on the property. However, they need to spend a part of that rent in property expenses such as property taxes, insurance fee, utility, etc. As a result, they need to look after the property and pay for everything that they aren’t using.
Switch to NNN lease, get rid of management responsibilities…
In a typical gross lease, the tenant only pays the rent which is then used by the investor for paying all operating expenses. However, a triple net or NNN lease requires the tenant to pay all operating expenses along with the base rent. It is a single-tenant arrangement in which the tenant pays the operating expenses such as property taxes, insurance fee, and maintenance cost, instead of the investor. NNN lease investment not only provides relief from day-to-day management responsibilities but it also guarantees a regular flow of income for investors.
Don’t get carried away, pay attention to your lease agreement…
It’s quite normal to get carried away looking at the benefits of NNN lease investment. However, that’s not what you should do as there are different types of Net leases and not each of them requires the tenant to pay all operating expenses. Only a NNN lease agreement requires a tenant to pay all three operating expenses – insurance fee, property taxes, and maintenance cost. On the other hand, a double or single net release may require them to cover one or two operating expenses.
- Double Net Lease – A double net or NN lease is a single-tenant arrangement that requires the tenant to pay two operating expenses, property taxes and insurance fee, along with the base rent. Whereas, the investor is liable to pay for any kind of maintenance or repair in the property.
- Single Net Lease – A single net lease is a lease agreement that requires the tenant to pay one operating cost along with the base rent. Here, the tenant can either pay the insurance fee or property taxes, whereas, the investor needs to look after the other two expenses.
- Modified Net Lease – A modified net lease is a net lease agreement that is modified keeping the tenant’s interest in mind. Under this kind of lease, the tenant is required to pay the insurance fee and property taxes associated with the rented property. On the other hand, the maintenance expense associated with the property is divided between the tenant and the investor.
Benefits 1031 investors receive upon closing their exchange with NNN Investment –
- Relief from property management – If you are entirely occupied with the maintenance of your investment property, you can exchange it for a NNN property using a 1031 exchange and get rid of day-to-day management responsibilities.
- Tax advantages – On doing a 1031 exchange, you can defer capital gains tax on the sale of your relinquished property, which otherwise you would have to pay. Not only once, but you can defer capital gains tax for an indefinite period of time, till the point when it’s forgiven.
- Regular flow of income – Another reason why 1031 investors prefer NNN investment is that it ensures a regular flow of income in the form of rent. Not to forget, the majority of NNN tenants are big established companies such as Walgreens, CVS, McDonald’s, etc. Having such strong tenants means a continuous flow of income.
Note: NNN lease investment requires a great understanding of the market and thorough research on the subject. It’s recommended that you consult an experienced NNN investment advisor before investing.
To speak to a NNN advisor, you can call 888-993-2835 or email us at email@example.com