4 Things To Consider When Investing In Triple Net Lease Properties

4 Things To Consider When Investing In Triple Net Lease Properties

By | July 5th, 2022|Blog|0 Comments

From a seasoned real estate investor to someone new to this realm, the goal has always been either higher returns or lesser responsibilities. But, here’s a fact: you can have them both with triple net lease real estate options.

A triple net lease or NNN is a lease agreement where the lessee agrees to pay all the expenses of the property, including maintenance costs and property taxes, in addition to paying the rent. NNN properties can be a great way to achieve a regular stream of passive income while tackling your landlord responsibilities altogether.

However, when choosing a NNN property, you must consider a number of things. This article is dedicated to that. Read on to explore the top four things you must keep in mind when investing in triple net lease properties.

Tenant’s Creditworthiness

When investing in a NNN property, your major motive is usually having a regular stream of passive income. And to make this happen, you must check the creditworthiness of your tenant. As an owner of a NNN property, your major chunk of income will be coming from the rent your tenants pay. And to ensure they make the payments on time, you must take a look at their financial documents and credit score.

Moreover, there’s no denying that publically traded companies are more creditworthy than privately traded companies. But, many publically traded companies tend to lease multiple locations while going through a financial crunch.

Therefore, when choosing a tenant, it’s often recommended that the sale agreement of the property and letter of intent and purchase must include any financial document of the tenant to ensure their creditworthiness.

Location

Yes, picking the right tenant is perhaps the most important decision you will ever make. But, tenants come and go. So, in addition to picking the right tenant, you must also choose a property located in an easily accessible location. In fact, the location is a long-term consideration. You must ensure that the triple net lease real estate option you are going for is in a location with easy street access and visible to those driving through.

In addition to this, you must also consider the build-up of the property. A property specially designed to a particular specification would be less likely to attract more tenants. However, if your property is more of a vanilla box, it would be easier and more affordable to release it once the current tenant leaves or the lease expires.

Agreement

Stating again, the lease for triple net properties requires the tenant to pay everything from rent, property taxes, common area expenses and other utilities. And, to make things absolutely transparent for you and your tenant, you must ensure that both parties have a copy of the absolute triple net lease agreement.

Lease Term

Most investors buy a NNN property to get their hands on a steady passive income. But, if the lease term is short, so will be your income stream. Moreover, releasing the property can be both- expensive and time-taking.

That being said, it is often recommended to buy a NNN property with a longer remaining lease term, most preferably 10 years.

The Takeaway

In addition to considering the four factors above, you must also consider the 1031 exchange timeline. In fact, if you are buying a triple net lease real estate property, chances are you are using your 1031 proceeds to invest in that to defer the taxes on your capital gains. And if this is true, you must also keep in mind the strict time crunch of finding the right replacement property within 45 days and closing on it within 135 days of finding your replacement property.

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”