Do you dream of owning commercial real estate (CRE) to build wealth? Are you close to or in retirement and want to diversify your investment portfolio? Would you like an increase in guaranteed monthly income? Whatever your reason, triple-net (NNN) lease investing is, in our opinion, the safest, most-reliable, income-producing investment with comparable ROI to other, less stable investments.
If you’ve been doing your CRE or NNN investment research but still can’t figure out “how do I get into NNN lease investing,” keep reading. This is a straightforward guide to discover:
- How much net worth you need to become a NNN investor.
- The annual income required to invest.
- The purchase price at which you can enter the market.
- How much of a down payment you need to qualify for a commercial mortgage.
- If your credit score determines financing.
- How to decide if NNN investing is the right choice for you.
- Who to turn to for help: Buyer’s Advisor vs. Buyer’s Broker.
1. “How Much Net Worth Do I Need to Become a NNN Investor?”
There is a general net-worth rule for NNN investors. If you have an authorized net worth of $1 million, not including the value of your primary residence, you may qualify for triple-net investing.
2. What’s the Annual Income Required to Invest in a Triple-Net Lease Property?
If you don’t have $1 million net worth but you make over $200,000 annually, there may still be an opportunity to invest. This parameter is only in place if you finance your investment. If you pay all cash, since there is rarely any maintenance with absolute NNN lease properties, you wouldn’t have any unforeseen expenses that would require a minimum annual income.
3. “At What Purchase Price Can I Enter the NNN Market?”
In most cases, NNN investment properties start at around $1,000,000. The following NNN lease properties have a lower barrier to entry for those just entering the market based on their median purchase prices.
- Dollar stores – $1-2 million
- Fast-food restaurants – $1.5-2.5 million
- Healthcare/medical – $1.5-2 million
- Some convenience stores start in the region of $2 million
4. “How Much Down Payment Do I Need to Mortgage a NNN Investment?”
If you’ve seen the clickbait ads claiming, “no money down property financing,” don’t believe it. If you choose to purchase a NNN property and take on debt to do so, a financial institution will usually require a 30–40% down payment while still maintaining liquidity in your asset portfolio. NNN investment financing options and down payment requirements are calculated on a case-by-case basis depending on the tenant and tenant credit, length of lease, location, and other factors.
Dollar General, DaVita, Walgreens, and other investment-grade tenants typically allow for more favorable financing terms and provide higher tenant quality and reliability of the investment.
5. “Does My Credit Score Determine NNN Financing?”
When it comes to single-tenant NNN properties, your credit score has relatively little effect on financing. Since most NNNs are leased to major brands that guarantee the lease and pay rent, taxes, insurance, and common area maintenance (CAM) no matter what happens to the property, the tenant’s credit is the key determinant for financing. The better the tenant, the higher the leverage. Other factors that play a role in in financing include the length of the lease, rent increases over the term of the lease, and location.
The amount of leverage a bank or credit union is willing to lend is invariably tied to the creditworthiness of the NNN tenant.
6. Evaluate if NNN investing is the Right Choice for You
How do you evaluate if NNN investing is the right choice for you? First, before you start looking at properties, perform a risk tolerance evaluation and look at your financial situation, then define your lifestyle and wealth objectives.
It’s important to be realistic when you do this, and really decide if you have enough capital to embark on NNN investing and what you hope to get and need to get from the investment.
To define your risk tolerance and financial aspirations and determine how much involvement you’re willing to take on, answer the following questions.
✓Do you have a $1 million net-worth or earn a $200,000 annual salary?
✓Are you investing a portion of your wealth or spending your entire 401k?
✓Will you be living on the income?
✓How much monthly income do you need?
✓Do you need to borrow money to make it happen?
✓Does the rent need to service a debt or loan?
✓Do you need depreciation for tax purposes?
✓Do you need tax write-offs?
✓Do you want equity for collateral or financial leverage?
✓Would you prefer a 100% responsibility-free NNN property?
✓If you choose something other than an absolute NNN, how much do you have available for unexpected expenses (roof, structure, parking lot, etc.)?
✓Are you going to manage the property or pay someone to do it for you?
✓What lease term suits your goals (10, 15, 20 years)?
✓Do you own another property that can be used in a 1031 exchange?
The answers to these questions will help you decide if you’re ready to invest in a NNN property investment and help narrow your scope so you spend your valuable time looking at the right properties for your goals.
Benefits of NNN Lease Investing
Imagine a multibillion-dollar company like Dollar General sending you money monthly while you work at your full-time job or simply enjoy life. The company pays the operating expenses, taxes, insurance, maintenance, and capital improvements while you benefit from the peace of mind knowing your asset is being cared for and your income is sound for the next decade or more.
You may also benefit from tax advantages like cost segregation depreciation and the possibility of conducting a 1031 exchange to trade-up from a residential rental or apartment complex to a NNN and defer all capital gains taxes.
A triple-net lease investment provides:
- Responsibility-free monthly income from anywhere in the country.
- A 10-15 year lease with a corporate guarantee.
- A lower-risk, recession-resistant investment.
- The opportunity to create wealth in a shorter amount of time than non-NNN investments.
- A permanent, tangible asset not subjected to daily valuation fluctuations.
- The ability to live anywhere and eliminate the stress of actively managing commercial properties.
7. Engage an Experienced Buyer’s Advisor to Help You with the Process
Engaging a specialized, experienced NNN lease advisor, like the team at Westwood Net Lease Advisors, provides many advantages over working with a traditional CRE broker, especially when it comes to your personal representation and purchasing the right property for your goals.
When you choose to work with Westwood Net Lease Advisors, we listen to and uncover your needs, risk tolerance, and investment goals, then find solutions that fit that framework. Our advisory helps you learn and assess what properties could work and, just as importantly, which ones wouldn’t be in your best interests.
Our advisors carefully pre-qualify and educate everyone with whom we work, so you receive preferential treatment from our nationwide network of sellers and their agents. This means you could receive the first opportunity to buy a property before it goes on the market and you will be positioned for priority when it comes to letters of intent and contract acceptance. We provide deeper insight into the entire process and free up your valuable time.
“We are true advisors, not order-takers. Our goal is to be your most trusted representative when it comes to buying or selling single-tenant NNN properties. Given that our firm is highly specialized with proven results, our advisors offer in-depth knowledge of the net lease market which allows you to make the most well-informed and educated decisions. – Chris Schellin, Westwood President and Net Lease Advisor
To Wrap it Up – Now You Know How to Get into NNN Lease Investing, It’s Time to Get Started
Now that you know how to get into NNN lease investing and you’ve determined it is the right choice for you, it’s time to get started. Once you assess your net worth and/or annual income and meet those requirements, you can decide on your ideal NNN investment purchase price. You can estimate how much of a down payment you need to qualify for a commercial mortgage and be more discerning about the tenant you choose for the best financing.
However, the easiest thing to do to get started with NNN lease investing is to simply reach out to our team. We’ll help you complete your risk tolerance and financial questions and navigate the entire process with ease – from education and advocacy to the property search all the way through closing – at no charge to you. Contact us today for your no-obligation consultation. 314-997-5227