What Does The Landlord Pay In A Triple Net Lease
The beauty of the triple net lease is that the landlord has very little to no responsibilities financially, aside from the structural components of the building.
The tenant will pay the base rent, common area maintenance, property taxes, building insurance, utilities, interior maintenance – just about everything except for the foundation, structural walls, and the roof.
So, if the building is in good shape or brand new, the landlord may pay nothing in a triple net lease scenario.
Cons For Triple Net Lease For Investors
Single tenantThe risk of having a single tenant is that if the business isnt viable or goes under, then the contract will be broken eventually. This cuts off the steady revenue stream, begins the quest for a new tenant to fill the NNN space, which is not always easy or cheap. Finding good, dependable tenants is always a challenge. The cost to retrofit the property might be significant and there will be downtime in between tenants resulting in no rental income and no reimbursement of the taxes, insurance or maintenance while the building is vacant.
Nnn Lease Properties Diversify An Investment Portfolio
NNN leases are integral components of any sophisticated investment portfolio. These types of properties are typically low-risk and tend to deliver passive, steady income with little to no management required. A long-term, stable, but potentially lucrative asset into a portfolio allows an investor to achieve an imperative balance dynamic. Additionally, acquiring a NNN leased property provides an investor with the ability to focus on other high-risk, hands-on investments. These attributes of a NNN lease property simplify the process of investment portfolio diversification, which is essential to avoiding market fluctuations.
Interested in commercial real estate investment? Ground + Space is a leading commercial real estate brokerage firm that specializes in single-tenant and retail NNN investments. Contact us today to find out more about our current listings!
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Know Your Worth From The Beginning
First and foremost, before you invest in an NNN property and consider a lease rate, its important to know that investors in NNN property offerings have to be authorized with a net worth of $1 million at the least. This is, of course, without the value of your primary residence included. If you dont have a net worth of $1 million, you may still be able to invest if you have an annual income of $200,000.
What Are Good Nnn Tenants
Like most commercial real estate investment properties, the strength of a NNN investment is directly tied to the strength of the tenant . For this reason, it is critically important to perform a significant amount of due diligence on the tenant, their business model, their financial strength, and their payment history.
In some cases, this may be a relatively simple task. If the tenant is a publicly traded company like Walgreens or Starbucks, this information is widely available. In fact, the tenant may even have a credit rating with one of the major agencies like S& P or Fitch.
If the tenant is not a publicly traded company, the same due diligence still needs to be performed, but the information may have to come from the tenant themselves instead of public disclosures.
All tenants are different, but the best ones tend to have the following attributes:
- Established company with a viable business model
- Track record of operating profits and on time payments to lenders and creditors
- Manageable amount of debt
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What Is An Investment Grade Tenant
Regional tenants and franchises are often too small to receive this accreditation.
For example, you could be looking at two different net-leased Starbucks properties as an investment. However, one is guarantied by corporate and one is guarantied by a franchisee. The property guarantied by corporate will have an investment grade tenant while the franchisee site wont, meaning the corporate site will likely trade at a lower cap rate since Starbucks Corporate will have a better ability to repay their obligations than a franchisee.
Is A Dollar Store Nnn Investment Truly Recession
Though its impossible to say with one hundred percent certainty that dollar stores are recession-proof, records confirm growth and consistency in times of recession, and we are seeing their strength during one of the most challenging worldwide events in modern history.
As other retailers that target middle-income shoppers are losing customers and closing stores, the market for dollar stores is only getting stronger they are becoming the sole shopping choice for many communities, even in locations where there is a Walmart and a large grocery chain.
According to the Institute for Local Self-Reliance, as of December 2018, there were close to 31,000 dollar stores in America. Thats more locations than the combined number of Walmart, Kroger, Costco, Home Depot, CVS, and Walgreens stores the countrys six biggest brick-and-mortar retailers, reports Forbes.
As for too many physical locations, dollar stores have discovered that by spacing their stores out strategically they can build customer loyalty without cannibalizing other nearby stores. Their branded locations are strategically placed with solid demographics. It is no coincidence that they are near residents who need their products and like the convenience of a dollar store being close to their bank, pharmacy, and gas station.
Dollar stores are a perfect fit for the three main end-goals of a NNN investor:
#1 passive income from anywhere in the country.
#2 reliability for the preservation of equity.
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Ideal Triple Net Leased Property Locations
Triple net leased properties tend to be particularly prevalent with office and retail property types. As such, the ideal locations for these property types tend to be in high traffic areas where there is excellent visibility from the road and easy access to the office building or shopping center.
In our own case, we tend to like single tenant, freestanding, triple net lease properties that are outparcels to popular shopping centers. Usually, these properties are bank branches, quick service restaurants, or coffee shops.
Aldi Stores For Investment: Crucial Tips To Note Before Purchasing An Nnn Property
In the real estate market, NNN properties rank as one of the best investment forms. Most investors have revered it due to some factors: minimal risks, convenience, and high-profit margins.
With NNNs, you dont have to worry about shouldering any responsibilities as a landlord. All thats required is purchasing the property and securing a tenant. When thats done, you can practically cross your legs and get positive dividends as long as the lease is active.
However, its important to note that while NNNs might seem positive all through, youll have to make some considerations as an investor before keying into one. Why? Because while most NNNs might come off as profitable, not all might yield the dividends you seek.
So, lets say youve been looking towards an NNN lease for good profits, and youre casting your sights on ALDI stores for investment. Before you make that purchase, youll have to get some perspective on what business venture youre about to patronize.
In this article, well be making the process easier for you. How? By running a background check on the company ALDI and considerations you must factor in before a purchase goes through.
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What Do The Numbers Say
As the numbers have continued to show steady growth in the food business industry, investing is one of the best steps to ensure continuous profitability.
Those interested in growing their investment portfolios must support fast-food restaurants for lease in the US. There are over 200,000 quick-service restaurants with total revenue running into trillions and trillions of dollars.
Numerous QSRs require the investment of triple net lease investors to push their businesses to different locations, creating a win-win profit situation for both property owners and fast-food corporations.
Studies have also shown that drive-through restaurants aim for more market growth, especially with the rising demand for inexpensive food.
Many QSRs are beginning to implement more decisive and profitable business approaches to adapt to the ever-changing consumer demand by infusing digital technologies and reinventing menus. In recent times, quick service restaurants have seen an increase in digital orders and the volume of drive-through traffic.
Hence, many restaurant businesses for sale plan to expand their locations to serve customers better, with the aid of inclusive lease options such as a triple net lease.
This way, tenants will begin long-term corporate-guaranteed leases with the cap rates of properties ranging from 4 to 8% at a median asking price of $1.5 million.
Who Are Typical Net Lease Tenants
The best net lease tenants are considered recession-proof tenants. They tend to be businesses that offer fundamental services and goods. A few of these types of businesses are: grocery stores, restaurants, convenience stores, gas stations, discount stores, and medical companies.
If real estate investors find this combination, a net lease property with a recession-proof tenant, it is a very advantageous investment opportunity. A steady residual income flow with mitigated chances of failure.
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What Is A Triple Net Lease
In order to understand what a triple net lease is, it is first helpful to understand how the economics of a typical commercial real estate asset work. To illustrate this point, imagine a typical commercial shopping center. There are stores with rent paying tenants, but there are also common areas that are used by all tenants and visitors to the center. These typically include things like parking lots, elevators, landscaping, and walkways. There is a cost associated with the maintenance and upkeep of these areas and the difference between a net lease and a gross lease is highlighted by identifying who is responsible for paying these costs.
In a gross lease, the tenant pays one monthly rental amount and the landlord pays the propertys operating costs which typically include common area maintenance, property taxes, and insurance. In a net lease, the tenant pays a lower base monthly rental amount plus their proportionate share of the operating expenses.
Broadly, there are three types of net leases that are commonly used in commercial real estate transactions:
It is this last structure that is the focus of this article.
Why The Triple Net Lease Fast Food Investment Is Great For You
Most of the fast-food restaurants for lease are often triple net leased due to the numerous advantages associated with the lease option. The steady income generation with low risks allows for expense-free ownership with a corporate-backed lease guarantee for an extended period, usually ten years.
Thus, if youre interested in building equity over a lease term, the NNN lease option is for you. You may schedule an appointment with Buy NNN Properties today to get on board and begin the leasing process.
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How To Find The Best Nnn Properties For Sale
Although triple net leases are common practice these days, finding such properties for sale is a whole different story.
Many real estate selling websites do not offer to filter their results to NNN property search, so if youre looking to buy a triple net property, here are some tips on conducting an NNN property search. Usually, there are five noteworthy markers to consider if youre doing NNN property search
Find The Right Lending Partner
While triple net investments can make attractive all-cash deals, youd be wise to open up the lending conversations early on to see where your debt terms will arrive.
Since its possible to find investments equally attractive in Nevada and Georgia, youll want a lender that has the ability to travel nationwide with you. Your local banking relationship could be a good bet, if theyre open to it, or you may want to seek a mortgage broker to source those deals on your behalf.
Having those debt terms on the front end will aid in your underwriting of the projects so that you can move quickly when you see something that fits your criteria.
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A Note About Cap Rates And Cash
Before we go any further, you absolutely need to be up on the difference between cap rates and cash-on-cash returns. If you are even remotely questioning your knowledge of these two terms, pause with this article for a second and go read Cap Rate and Cash-on-Cash Return: A Definitive Guide.
Be sure you are up on the details of what goes into each, but heres a very short blip about the two. Cap rate only measures the purchase price of a property as compared to how much income it brings in. The CoC is the actual return that you are getting on the money you put into that investment.
If you pay all cash for an investment property, then the CoC will be the same as the Cap Rate. If you are financing, however, it will be different. If you are financing, the more accurate number you need to know when evaluating a potential investment property is the CoC because that tells you exactly how much bang you are getting for your buck.
When you calculate the CoC, the number will be different because instead of comparing the net income with no financing cost included with the purchase price, you will be comparing the net income with the financing cost included to how much money you actually put into the deal. So you end up with an actual percentage return on exactly how much return you are getting on the amount of money you put into the deal.
Types Of Commercial Real Estate Leases
Tenants and landlords can negotiate different terms for their leases based on the expenses and responsibilities that are part of the occupying and maintaining the property physically and financially. For starters, there are three types of leases that are most commonly used for commercial real estate properties:
1) Gross Leases Gross leases are commercial real estate leases whereby the tenant pays a flat rental amount for occupancy. Meanwhile, the landlord pays for all regular operating expenses, including: taxes, electricity, and water bills.
2) Modified Gross Leases A modified gross lease is the same as a gross lease, but in addition to the base rent, the tenant takes on a proportion of some of the other operating expenses of the property.
3) Net Leases In a net lease, the tenant is responsible for the base rent plus one or more of the propertys expenses, depending on what type of net lease. We dive more into that concept in our next section.
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Top Factors To Consider When Investing In Nnn Properties
It wasnt long ago that only a select few people had ever heard of investing in triple net properties. I still get asked almost daily to explain exactly what is a NNN property and how does one start investing in the asset class. As more investors decide to leave other management intensive investments, NNN properties continue to gain popularity.
NNN properties are typically leased to tenants with high credit ratings on a long-term lease. The tenants generally pay for the taxes, insurance, and maintenance of the property, making for what should be a very attractive and low-management alternative to other real estate investments.
They are particularly attractive to 1031 buyers who have realized significant appreciation of properties that have required lots of hands-on attention over the years. Often, these NNN assets are free-standing properties leased to tenants with very recognizable brands think Dollar General, Walgreens, Advanced Auto Parts, 7-Eleven, Starbucks, FedEx, etc.
Be Realistic About How Much Time You Have
Potential commercial real estate investors may be looking for a smart means of investing their extra money. However, its essential to make the right investment choice.
The NNN real estate market may not be your best option if you have no time at all to manage your commercial properties once you obtain them. However, if you do have a little downtime, a triple net lease property may be right up your alley.
Triple net properties place the responsibility of the propertys maintenance, building insurance, and real estate taxes on the shoulders of the tenant. Whats more, triple net leases last for longer periods of time. Therefore, you wont need to search for tenants as often as you would with a single net lease property. While the returns may be lower than other types of commercial property investments, the management time and tenant turnover is far lower as well.
Sands Investment Group is Americas fastest growing net lease investment company, with over 2,100 transactions in 48 states since 2010. Our experienced team of net lease advisors and brokers are experts in NNN market and can help you find your next best investment opportunity by helping you navigate through all the opportunity and risk factors of every NNN property that meets your investment goals.
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The Reason Why Fast Food Restaurants Are Great Nnn Investments
The fast-food industry has continued to be one of the thriving industries in the past years, even in the middle of the pandemic.
The reason is not far from the fact that food is a basic necessity among humans. Statistics show that about fifty million Americans patronize fast food outlets daily, accounting for about $270 billion in 2019.
Thus, this steady growth of the food industry provides excellent investment opportunities, especially in quick-service restaurants such as Starbucks. Most fast-food restaurants for lease are beginning to adopt the triple net leasing method due to its general profitability.
This article elaborates on the reason behind the success of NNN fast-food franchises in various cities and why it is profitable to invest in them. However, it is necessary to briefly discuss the concept of NNN properties and why they are so lucrative.