6 Major Criteria For Triple Net Lease Investment Lease

  • 3 years ago
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The NNN Lease, or the triple net lease, is a standard lease structure utilized in commercial land. Despite the NNN lease’s recognition, the triple net lease structure remains commonly misunderstood by many commercial land professionals.

What is a Triple Net (NNN) Lease?

A triple net (NNN) lease is defined as a lease structure where the tenant is liable for paying all operating expenses related to a property. The triple net or NNN lease considers a “turnkey” investment since the owner isn’t accountable for paying any operating expenses. Thereupon said, to thoroughly understand the NNN lease, you want first to understand the spectrum of economic land leases.

Here are Six significant criteria of NNN.

Major Criteria For Triple Net Lease Investment Lease

Future Rental Potential Analysis

Rent analysis is the very first one needs to do before stepping into a Triple Net Lease Investment. The present tenant and therefore the chosen location might sound perfect to you. Still, you should do an in-depth rent analysis of rent.

Rent analysis determines the property’s potential and protects you just in case a current tenant vacates from the property. That’s why it’s essential to understand how to identify an asset with an income that would get replaced.

Credit-Worthiness Of The Tenant vs. Location

Always look over the credit history of the tenant when analyzing Triple Net Lease investments. A tenant who features a good investment grade credit is often advantageous, but not always.

Sometimes, there’s nothing much attractive to a few properties aside from a well-known tenant/company. But, if the tenant decides to vacate, you’ll have difficulties in re-leasing the property to a different tenant due to the less desirable market without much value.

Before investing during a Triple Net Lease property, confirm that the property would appeal to other tenants who supported the situation, the structure, and the local neighborhood.

Having a tenant with a robust credit background is excellent, but not everything is about the tenant. Commercial land deals depend upon other factors also.

Market Understanding

The main success factor is a thorough understanding of the market area. That’s why investors often target markets in which they’re conversant instead of markets they don’t know well.

But before investing during a market you’re comfortable with, do marketing research that includes:

  • Potential traffic,
  • Demographics,
  • Estimated increase
  • Similar factors that will increase business growth.

When analyzing a market you’re conversant in, the probabilities of finding properties with a possible increase in value are far more likely.

Understanding Lease Structure

NNN investments are considered a passive income opportunity. Hence the property lease must be an Absolute Triple Net Lease. The lease must clarify that the landlord/owner is free from any tax, utility, common area maintenance costs, and building maintenance.

The investor should have a replica of the lease before stepping into a sale and sale agreement. A billboard land attorney should even review the lease to gauge both parties’ liabilities, the tenant, and therefore the landlord.

Lease Term

When considering NNN investments, it’d be better to travel for long-term leases, with approximately ten years or more. But if the lease’s remaining term is brief and you would like a long-term investment, you would possibly invite a reduced property price from the vendor so that you’ll balance the releasing costs.

1031 Exchange Funds

Investors can use the lease amount from a relinquished property to shop for another Triple Net Lease property. It is often the wisest way of doing billboard land investing.

However, for a successful 1031 Exchange, you must follow strict timelines. You want to identify a replacement, replacement property within 45 days after selling the relinquished property and piping out with the 1031 funds.

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