As the country continues to open up and people are starting to head back to their offices, some real estate markets are seeing a net lease boom. To many investors, it’s a good time to look into the various investment opportunities available.
Whether you’re new to real estate investment or an experienced real estate investor, Triple Net Properties or NNN is an excellent way to secure a passive income stream. NNN investment is relatively low-risk, builds equity, and adds diversity to an investment portfolio.
If you are interested in trying your hand at NNN property investing, you must learn to understand the nuances of this type of contract. This article will go over some of the key things you need to consider before looking into purchasing NNN properties.
Knowing Your Worth for NNN Investment
The first thing you need to consider before investing in NNN properties is knowing if you have enough net worth to be accredited. To be authorized for purchase, triple net lease investors must have at least $1 million of net worth, excluding their primary residence value.
Investors who don’t have a net worth of $1 million can still be accredited, provided they have an annual income of $200,000 or more. Many small investors can also participate in this type of real estate by investing in real estate investment trusts (REITs) that focus on NNN properties.
Tenant Creditworthiness for NNN Properties
In a NNN property agreement, the tenant shoulders most of the financial responsibilities of the property, like taxes and maintenance. It’s essential to choose a property whose tenants have excellent credit scores because they will take over all taxes and expenses.
Corporate tenants usually have credit ratings determined by three major firms: Standard and Poor’s, Moody’s, and Fitch. Corporate tenants with excellent credit scores have a rating of “BBB” or higher. These ratings are also considered ‘investment grade.’
Before making an investment decision on a triple net lease property, be sure you are familiar with the tenant’s credit, business model, and other key metrics (net income, revenue).
Your NNN Property’s Location
Like any type of real estate, the location of your NNN property is a vital component in determining how successful the investment will be. The location is also pivotal when you need a new tenant since it’s much easier to find one if your asset is in a desirable area.
When it comes to location, consider the following:
- Visibility: The property must be highly visible by passing traffic.
- Accessibility: Properties may be highly visible, but sometimes they could be difficult to access due to curb cuts, medians, one-way traffic, etc.
- Traffic: Being in an area with enough road and foot traffic can be very important, especially if your tenants are retailers or restaurants. You can also consider the location’s daytime and evening traffic.
- Population Density: It helps to know population figures within a 1-mi, 3-mi, and 5-mi radius. Understanding the population density can help give you an idea of how much traffic can be expected daily and how many customers can become regulars for your tenants.
- Demographics: It’s essential to know who lives and works around the property. Is the property in an office district or a residential area? Knowing the demographic data can help you assess if current or future tenants, businesses, and services suit the location. Expenditure data based on the population may be impactful as well.
It’s also essential to consider the form of the building. For example, a NNN property built to house a brewery will require massive remodeling before a tenant from another industry can move in.
Some properties may have long-term debt that cannot be paid off without significant penalties. Examples of these debts are CMBS (commercial mortgage-backed security) debt and those issues by insurance companies.
These penalties are often stiff and sometimes include assumption clauses that require new borrowers to take responsibility for the debt. Investors must carefully evaluate the required equity, the terms of the debt, and assumption fees to see if the property meets the acquisition requirements.
Choose Qualified Advisors for Your NNN Investment
The above are just a few of the factors you need to consider as you move towards investing in an NNN property. You must take the time to study and review each aspect of the property before committing to purchase.
By making informed decisions on your property, you can fully utilize the benefits offered by NNN investments. But sometimes, becoming an informed buyer is a long and challenging process, which is why you should always work with a qualified brokerage that specializes in triple net leases and commercial real estate investments.
Brisky Net Lease has a proven commercial real estate track record and a team of industry experts who can meet your goals and expectations regarding net lease investments.
If you want to know more about NNN investing, contact us today, and let our team of expert brokers provide you with additional information about the NNN market.