As the economy continues to bounce back from the pandemic, investors are beginning to look for avenues to diversify their investment portfolios further and boost their passive income. Real estate is always a good investment avenue, but the probability of gaining significant returns depends in great part on the type of leasing policies adapted for the property.
Triple net investments are a popular investment vehicle for property investors to build a stable source of passive income. It promises plenty of freedom for the landlord and flexibility for the tenant. However, knowing the specifics of these leases will help you make informed decisions that will eventually net you greater returns.
This article will try to address some of the most common questions you may have as a property owner or investor for triple net leases.
What Is a Triple Net Lease?
A triple net lease—also known as NNN or net-net-net—is an agreement between a landlord and tenant that frees the landlord from the obligation to pay most of the expenses that usually come with property ownership. Expenses such as property taxes, insurance premiums, utilities, property maintenance, and repair costs are paid for by the tenant in triple net leases.
Such lease agreements are more common in commercial real estate than residential. However, the nature of the agreement gives tenants the freedom to modify the property to their liking.
What Makes NNN Ideal for Landlords?
One of the most common perks that come with triple net investments is the length of the lease. Depending on your tenant, a lease can last up to 20 years. Such long lease periods provide a safe and long-term source of passive income to you, the property owner. The stability of NNN also makes it one of the most resilient investment vehicles during recessions.
Another benefit of triple-net leases is the predictability of tenants. The usual tenants of such leases are nationwide brands like fast food chains and retail stores. It’s easier to understand the needs of a tenant that operates under an already-established brand.
What Is the Landlord’s Responsibility in a Triple Net Lease?
Some mistakenly think that there are no landlord responsibilities in a triple net lease, but the lease may require you to shoulder some or certain expenses. Some leases may hold the landlord responsible for the roof or the structure of the tenant leases. Other agreements may require the owner to maintain the parking lot or exterior structures. It is important to read and understand your lease thoroughly to ensure you know what, if any, responsibilities fall on you.
What Are the Risks Involved in Triple Net Leases?
While triple net leases are relatively safe investments, it does come with their own share of risks. A tenant that decides to pack up and leave can leave your property unutilized for quite some time. Finding a replacement tenant that will undergo similar terms can be a long process that will leave your property waiting for months for its new occupant.
Additionally, if your tenant is fully responsible for building maintenance, they may choose lower quality repairs to hedge costs. But this subpar work will most likely come back as major repairs in the future, a future that may have to be handled by the landlord if the tenant has moved on. A way to avoid this potential risk is to have a list of approved vendors for maintenance that your tenant may choose from, ensuring the job is done right, while still allowing your tenant freedom of choice.
Explore the Benefits of Triple Net Leases
Like every investment you’ll make, a triple net investment comes with its own set of perks and challenges. Triple net leases offer lower financial responsibilities for the landlord, a longer lease length, and more stability; however, you need to fully understand your lease to avoid risks as well. Knowing the ins and outs of this investment vehicle will help you to decide whether or not to push for such a lease on your property.
To know all the details of triple lease investing, get in touch with the NNN industry experts at Brisky Net Lease. Our team has years of experience in real estate and can help you get the best deal possible.
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