What is a triple net lease?
A triple net (NNN) lease is a type of lease agreement where the tenant agrees to pay the majority of the property’s operating expenses. These costs may include taxes, insurance premiums, utilities, maintenance and repairs. However, there may still be a few expenses that the property owner is responsible for, such as accounting costs.
How do you determine if a tenant is worth the risk?
Before you let a tenant sign a NNN lease, it’s vital to find out if they are worth the credit risk. After all, a tenant with a poor credit history could lower the value of your property. While it’s easy to pull up credit ratings of publicly-traded companies, analyzing a private company’s credit report may take some more work.
What are the benefits of a triple net investment for investors?
Individuals who make triple net investments can enjoy several benefits from them. Firstly, they may have predictable revenue stream for many years. This is because most of these leases are for at least 10 years, and sometimes even more. As long as there is a tenant in the property, the investor can have steady income for the property.
Another important benefit of a NNN lease is the low management requirements. With this type of lease, property owners don’t have to worry about paying insurance premiums, making repairs, and covering other responsibilities that traditional property owners have to deal with.
What benefits do tenants receive from a triple net lease?
Tenants who choose a triple net lease can also enjoy benefits from it. For example, as long as the building is in good condition and doesn’t need much maintenance, the tenant may benefit from lower rent. A tenant also has the flexibility to make repairs and other changes to the property without consulting the landlord. He or she can get started on repair projects right away and save a lot of time.
Does a triple net lease come with risks?
While triple net investments offer many advantages, they do not come without risks. One of the main risks investors should consider is re-leasing. When triple net investment properties are sold after a long-term lease, the new owner must re-release them.
It is also possible for companies to go out of business during their lease. If this should happen, you would be left with no income on this property. Without a tenant in the building, you will be responsible for covering all the costs associated with the property.
What information do you need to create a triple net lease?
In order to create an accurate NNN lease, you will need to have several pieces of information ready, including:
- The agreement effective date
- Description of property that is being leased
- Term property is being leased
- Full names of tenants on lease
- Payment information, including how often payments will be made and the amount of each payment
As with any major investment, it’s important to consider the long-term effects and to find a level of risk that you are comfortable with. For more information about the leasing industry, contact us at Calkain today.