A triple net (NNN) lease is a commercial real estate structure where your tenant or lessee takes responsibility for all the operating expenses associated with your property. This is in addition to paying for an agreed-upon monthly rent. These expenses include taxes, insurance, and maintenance, which is what each net (N) refers to, hence NNN.
Why NNN Properties?
Single-tenant NNN properties provide investors with reliable streams of income with low risks. Most tenants that lease this type of property intend to stay for quite a while, so investors don’t have to find new tenants every year. It also helps build equity and adds to investment portfolios.
Since the tenant is responsible for all operating expenses, you, as the investor, have few landlord duties. This saves time and energy and allows you to invest in areas that you cannot constantly monitor in person.
Steps to Investing in NNN Properties
If you’re considering investing in NNN properties, you have to know what steps to take and the nuances of this kind of real estate.
1. Hire an NNN Lease Broker
Though not strictly necessary, you should consider hiring a NNN lease broker if you have little experience with these types of properties. A broker will be able to give you advice, help evaluate properties, and assist with negotiations.
2. Find the Right Properties
Although tenants typically set up and pay for triple net property insurance, the landlord still needs to be listed on the policies. Some insurance types might also need to be covered by the landlord. It’s best to discuss and negotiate policies with your tenant before they set up their insurance.
3. Set Tenant and Term Criteria
Be aware of a tenant’s credit rating when choosing a renter, because they will be taking over these duties for you. It’s important to set your criteria from the beginning so you can narrow down your search.
Many NNN properties will come with a tenant already occupying them. Consider the type of businesses operating in the location. You will want properties with tenants running businesses that are resistant to recessions, meaning they bring in customers even during economic downturns because they are always needed. Examples of this are grocery stores or health clinics.