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
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’.
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 Property 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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A NNN or triple net lease is an increasingly popular form of a rental agreement between the landlord (or investor) and tenants for commercial real estate. Though a lot of the financial responsibilities are borne by the tenant, NNN leases are still heavily obliged and preferred, even when compared to other variations of net lease agreements. NNN leases provide multiple benefits to tenants and investors alike, making them ideal opportunities for seasoned or new investors. Below explained are four reasons to consider NNN lease properties.
Under the NNN lease, almost all the financial burdens are handled by the tenant. By definition, NNN leases need very little management from the investor, as the tenant is responsible for the agreed-upon rent as well as property taxes, property maintenance, and property insurance.
This simplicity and lack of financial obligation are profitable for investors, but these terms also give the tenants a sense of control. Tenants do not need to wait for weeks on general property maintenance from an overwhelmed landlord and enjoy the greater freedom offered by a NNN agreement.
NNN lease properties are often preferred by secure, reliable tenants, as they are aware of their incur responsibilities. Tenants who prefer NNN lease properties frequently include mattress outlets, gas stations, convenience stores, grocery stores, and fast-food restaurants.
Multi-tenant property sets favor NNN leases because the rents are less under this. Additionally, with the responsibility of property taxes, insurance, and maintenance, the business owners have the incentive to keep costs low. These types of tenants allow investors to easily offload the burden of the additional property expenses while maintaining a steady and dependable source of income.
The predictability and stability of NNN investments are pleasing for both parties starting the agreement. The structure of a NNN lease is known from the outset, and the entities that prefer NNN leases provide predictable accountability and sustainability for the property's well-being. Additionally, the typical occupants of a NNN property are often impervious to the effects of the rise of e-commerce, which facilitates long-term rental agreements and builds quality relationships between the landlords and tenants.
NNN leases are the primary components of any cultured investment portfolio. These properties are typically low-risk and lead to passive, steady income with little to no management responsibilities. A long-term, stable, but potentially profitable asset into a portfolio allows an investor to gain an imperative balance dynamic. Also, getting a NNN leased property provides an investor with the capacity to focus on other high-risk, hands-on investments. These properties of a NNN lease property simplify the process of investment portfolio diversification, which is necessary to avoid market fluctuations.
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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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