Triple net leases, or NNN leases, have become increasingly popular in recent years, and it is important to know what sets them aside from the single net lease and double net lease. A triple net lease is a more simplistic lease in which the landlord holds little to no responsibility for the NNN lease property. In a triple net lease, the tenant is liable for property taxes, insurance and maintenance, relieving the burden and unpredictability of those costs from the landlord. Maintenance and repairs are additionally at the discretion of the tenant, leaving the landlord with minimal upkeep and few if any fees. The greatest difference between a triple net lease and a single or double net lease is the long-term nature of the contract. Most often, a triple net lease involves a 10-plus year term with a singular tenant.
Who Should Invest in a Triple Net Lease?
Ideal candidates for triple net leases are those seeking real estate investments that provide steady financial growth with relatively low risk and the potential for possible capital appreciation of the property. Investors should be prepared for a 10- to 15-year lease term in which a built-in rent escalation contract is instilled. A triple net lease is especially beneficial for an investor desiring a hands-off approach to managing the net lease property. Instead of micromanaging the operation’s taxes, maintenance and insurance, a triple net lease investor is willing to set aside all of these details to the tenant. While those investing in an NNN lease property accrue a steady profit over the length of the triple net lease, an investor must already hold a net worth of a minimum of $1 million to be qualified.
What are the Primary Benefits?
Triple net leases offer a low-maintenance upkeep that cannot be found in single and double net leases. With the main responsibilities of taxes, maintenance and insurance being shifted to the tenant for a locked-in term of 10 to 15 years, the investor has little to no responsibilities to manage on a regular basis.
The nature of a triple net lease is to have agreed upon terms for the duration of the lease with any set rent increases drafted in the contract. The purpose of this type of an agreement is to ensure that both parties have an awareness of the fiscal elements of the term with no unexpected alterations. The investor then benefits from a consistent and reliable stream of income while the tenant is guaranteed a known price for the duration of the term.
Investing in triple net lease properties has little room for problematic risks thanks to the agreed upon terms of the contract. A triple net lease releases all of the maintenance, repair, taxation and insurance concerns to the tenant, leaving the investor free of any unforeseen costs. Additionally, if the NNN lease property is sold, the investor has the ability to transfer his or her capital into a different triple net lease investment with no taxation thanks to a 1031 tax-deferred exchange.
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