Benefits of Investing in Triple Net (NNN) Lease

  • Freedom from property management
  • Savings on property maintenance
  • Frequent hike in property rent
  • Regular flow of cash
  • Defer Taxes Easily

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What is a NNN (triple net) Lease?

A NNN lease, also known as a triple net lease, removes the burden of property management from an investor’s shoulders. Basically, a NNN lease requires the tenant to cover the additional expense of the property and the base rent. The reason why a NNN lease is called so is because it includes all three additional property expenses – property taxes, insurance fee, and maintenance cost (also known as the ‘three-nets’). So, each ‘N’ of a NNN lease basically represents one ‘Net’ or one additional expense. In some leases, tenants are only required to cover any two additional property expenses along with the base rent. Such arrangements are known as ‘NN leases’ or ‘double net leases’.

NNN lease and 1031 Exchange Explained Through an Example

Gregory, a 60-year-old investor, was on the verge of his retirement. He decided to do a tax-deferred exchange (1031 Exchange). Though he had a couple of properties under his name, he chose to relinquish his rental property because it had already depreciated. Upon successfully closing on the sale of his relinquished property, he took the help of a Qualified Intermediary. And reinvested the proceeds on a NNN properties for 1031. By doing so, he helped himself in securing an income-producing property against a depreciated property. At the end of the exchange, Gregory gained an improved income-producing property. This property was also costlier than his relinquished property. Gregory also secured a regular flow of income for the rest of his life and that too without the burden of property management.

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Benefits of a NNN investment

  • Regular flow of cash -One of the biggest benefits of possessing a NNN property is that it will never run you out of cash. Since the majority of NNN tenants have high credit ratings and strong financial support, NNN investors enjoy a regular flow of income.
  • Savings on property maintenance -As NNN leases require tenants to cover the maintenance expense of the property, investors don’t need to spend a single penny on the maintenance of NNN properties.
  • Advantage of tax deferment - NNN investors can defer capital gains taxes upon exchanging their properties using 1031 Exchange. As no tax is recognized on the exchange, investors always have the option to acquire bigger and better replacement properties.
  • Frequent Rent Increases -On account of renewal of a NNN lease or even during the primary term of the agreement, investors can expect a regular increase in the rent. This ensures that NNN investors enjoy a hike in their income after every particular interval of time.
  • Mode of passive investment -‘NNN lease’ is a blessing for passive investors. Some investors don’t like to get exposed to the risks directly. Since the burden of paying property expenses is upon the tenant’s head, NNN investors enjoy 100% passive investment.

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