Commercial space can be leased in several different ways, depending on your needs.
Despite its popularity among investors and landlords, the triple net lease also has disadvantages.
NNN Leases have a lot of Pros; let’s take a look below
The responsibilities of the landlord are minimal.
Taxes, building insurance, and standard area maintenance are all passed on to tenants through Net Net Net Leases.
Landlords have little responsibility regarding expenses and property maintenance since tenants usually pay their proportionate share, and property management usually falls under standard area maintenance.
This way, investors can purchase NNN properties across the country, not just in their local area.
The longer-term occupancy of single-tenant triple net deals is possible, especially when the tenants are national or regional credit tenants.
Some of these properties have leases of 10, 15, or even 20 years, depending on the property type, tenant, and build-out.
Rent will continue to be collected by investors and landlords for some time.
Passive and reliable income
Net Net Net Leases are the epitome of “mailbox money.” Because tenants usually guarantee NNN leases with solid credit, NNN investments are among the highest performing passive income investments.
The property manager will collect rental payments and handle any tenant issues, so you won’t have to worry about anything other than depositing checks or managing tenant turnover.
Leases Are Transferable
As with most real estate investments, net leases are transferrable from one owner to another.
The next investor can use the same strategy if you purchase a long-term lease, cash it for a few years, and then flip it to them.
Commercial property isn’t the most liquid asset class, but if you need to cash out or move the capital to another project, you can usually sell and transfer it quickly.
Protection From Expense Increases
Triple net investments are popular among investors for this reason alone.
If these expenses increase, the landlord is not responsible for covering the difference, and the property’s costs are passed through directly to the tenants.
In other words, if your property taxes go up or your CAM goes up due to unexpected snow removal or other maintenance, you’ll have to pay it from your tenants.
Here are some cons of a NNN lease
Limited Upside Potential
It is difficult for value-add investors to increase income potential and property value with triple net leases since long-term tenants usually have fixed rents.
Nonetheless, you can adjust and increase the rent until the lease expires or the tenant leaves.
Investing in secure investments and generating passive income isn’t a big deal for investors looking for a more significant upside. However, the yield-driven value-adders may not find it appealing.
Building it specifically for the current tenant could make it difficult to resell. A single tenant’s net lease is particularly affected by this.
Adding roll-up doors, adjusting the floor plans, and more could be required for the next tenant, resulting in an extensive renovation bill.
Additionally, having a location only suitable for the first tenant is possible, adding to your higher rollover costs and difficulty finding another tenant.
Depending on the property type and how sophisticated your potential tenants are can also affect your lease structure.
Your CPA and attorney will also be able to give you advice on which route is best.
Net Net Net Leases are becoming increasingly common among retail and restaurant spaces and office and industrial properties due to their many benefits for landlords.