Simply put, Triple Net Lease Investing is a form of passive income for commercial real estate investors who wish to have few landlord responsibilities. Triple net, or NNN as it is commonly referred to, stands for:
1. property taxes
2. property maintenance
3. property insurance
which are all responsibilities passed to the tenants who are leasing the space.
Investors invest for their money to work for them, not to work for their money.
For some investors, property management is NOT why they are in business. Money is a tool, and one of the clearest ways to see this is in NNN investing. NNN investing is ideal for those who prudently research opportunities with proper advice and guidance from their team of commercial brokers, attorneys, CPAs, appraisers, and inspectors. Yes, there are many people involved, but when done right, you will have a low-risk, high performing asset that can pass down generations.
How much is your time worth?
This style of commercial property investment works in most types of commercial property; including retail, industrial, land, and office. The value in NNN leasing is in the lease.
For example, if I find a Starbucks for sale, and after thorough research, I confirm that Starbucks has 15 years left on a 20-year lease AND the numbers (net income) work for me, I will likely invest in the Starbucks over a multifamily property of similar value. My reason? The multifamily property will require me to either, a. hire a property management company (which can be expensive) or b. manage the property myself (which is time-consuming). BOTH of these avenues would take away from profits.
There are many things to investigate to verify the strength of the property to see if it will be an asset or a liability (I will write another blog on this topic). You can call this research due diligence. Prudent steps should be taken on every property of consideration. Some of these steps include: conducting a title search, appraisal, inspection, environmental survey, and an audit of the income as well as the lease(s).
Your investment being able to keep up with inflation is another advantage of NNN investing. This happens by charging a 2-3% rent increase each year to account for the inflation rate. There is certain language that must be written into the lease; but if included, can retain and possibly increase the value of your investment.
Triple net assets are one of the closest investments to planting a money tree. There are many advantages to a triple net lease and though the risks are low, they still exist; however, with the right team of professionals, you can drastically reduce those risks.