As an investment, owning a triple net lease (NNN) property is not only a good idea, it’s a great idea! A NNN property is a low-risk, passive, stable, long-term investment with a reliable, credit-worthy tenant that provides effortless monthly income, periodic rent increases for 10 to 20 years, and few or no responsibilities. In any economy, these investments can help you build wealth and enhance your portfolio with tangible, valuable real estate.
Let’s look at the details of NNN lease investing and explore why these investments are such a strong real estate option.
What Are NNN Lease Properties?
Most often, NNN lease properties are tenanted by investment-grade, multi-billion-dollar companies like Walgreens, Dollar General, and Taco Bell. These companies require total control of the property for uniformity across their brand, so they tend to operate with corporate-guaranteed, absolute triple net leases, which frees the landlord from expenses and upkeep, as well as all taxes, insurance, and CAM.
Because NNN businesses offer consumer staples, they do well in any economy, even in an economic downturn, making them recession-proof, pandemic-proof, and internet-proof. Many retailers, medical clinics, pharmacies, fast-food/QSRs, gas stations, auto stores, dollar stores, car washes, early childhood centers, and other triple net brands continue to add locations and grow with the latest technology and AI for an exceptional omnichannel experience customized to their customers. This growth allows them to continue working with their real estate investors to expand their reach and build new stores.
Be sure to read our detailed blog that explains in even more detail what NNN lease investments are and how you can benefit from owning one or more of these low-risk investments.
We feel the triple net market offers investors stability in any economy. The key to a great investment is for buyers to know their risk tolerance and buy appropriately.” – Chris Schellin, President, Westwood Net Lease Advisors
Unlike the stock market and high-maintenance real estate, a NNN lease investment is a valuable, tangible asset that offers the security of monthly income backed by a lease, steady cash flow, and very few or no responsibilities for lifestyle freedom.
- Expense-free ownership with long-term guaranteed income
- Passive, monthly income shaped to fit geographical preferences
- A reliable, low-risk investment
- Preservation of wealth and stable investment diversification
- Opportunity to build equity over the lease term
- Permanent, tangible asset and value that will not fluctuate day-to-day
- Annual tax benefits and 1031 exchange opportunities
- Possibility of owning your NNN property debt-free at the end of the lease term
- Enjoy life without actively managing and worrying about your property
NNNs: Increase Income, Preserve Capital, Diversify Your Portfolio
NNN investments provide a reliable monthly income, usually guaranteed to be paid by the corporation for the lease term, no matter what happens to the property. NNNs mimic fixed-income investments by providing asset and rent growth, strong current yields (ROI), and long-term predictability – in many cases, steady cash flow for up to 20 years. They provide income security not often found in other types of investments, such as the stock market and other real estate. Depending on certain variables, with a 4.50–6.50% cap rate, you could realize an internal rate of return (IRR) from 7–12%.
When your capital is invested in a triple net lease property, it is not subject to sudden drops in value. Quite the opposite – you’ll earn monthly income that typically escalates over the course of the lease term, preserving the original amount invested and building wealth through the value of the real estate, tax opportunities, and more.
For added stability, you may diversify within your own NNN investment holdings. Nationwide properties, different tenant types and asset classes, and various lease durations make for a well-apportioned portfolio.
Triple net lease properties are a great idea if you’re a high net worth investor who wants passive, low-risk investments that increase wealth.
Triple Net Investment Tax Benefits
Cost segregation depreciation (CSD)
Depending on your property and individual tax variables, cost segregation depreciation (CSD) could allow non-structural improvements, such as carpet, indoor and outdoor lighting, heating and cooling systems, and landscaping to be depreciated over five, seven, or 15 years, versus 27.5 or 39 years.
This substantially shorter depreciable tax life – possibly an immediate 100% write-off the year of purchase – helps NNN lease investors preserve capital, realize immediate cash flow, and achieve significant tax benefits on new and existing buildings. These benefits are also gained through asset reclassification and write-offs when the asset is sold. In summary, this benefit allows you to:
- Adjust the timing of deductions to maximize tax savings.
- Swiftly depreciate expenses.
- Reduce/defer current tax liability.
- Increase cash flow for other investment opportunities or operating expenses.
- Take the entire adjustment (100% on buildings purchased between September 2017 and December 31, 2022)) in one year.
- Re-claim deductions dating back to 1987 without having to amend tax returns.
- Create an audit/paperwork trail that satisfies the IRS’s audit techniques guide (ATG).
There is also straight-line deprecation, a fixed annual wear-and-tear figure that can significantly lower your tax burden and increase your IRR. Be sure to speak with your CPA or tax specialist about your depreciation opportunities.
Section 1031 Exchange
When you sell your NNN property for another or sell other commercial property and trade up to a NNN property, you may avoid capital gains taxes with a §1031 exchange. This tax code can defer taxes indefinitely. It is basically an interest-free loan from the government that encourages reinvestment and economic growth. This tax code allows you to:
- Trade up from a high-maintenance to a low-maintenance property (i.e., from an apartment complex to a triple net lease investment).
- Diversify your holdings by exchanging one property for two or three.
- Relocate your property investment to a more promising part of town or area of the country that is getting ready to boom.
- Bolster your real estate investment portfolio.
To Wrap It Up – Triple-Net Lease Properties Are Great Investments
Maybe you’re close to retirement and want to diversify your investment portfolio, increase your monthly income, or create an estate plan to leave sustainable revenue to your children or grandchildren. If you’re a new investor building wealth while you work or want to make a career out of commercial real estate investing, triple net lease properties are a good idea. They offer a stable and strategic way to accomplish all of these goals.
If you’re ready to look at NNN properties, they are highly desirable, often difficult to locate, and they sell fast. To get the right properties for your goals, engage Westwood Net Lease Advisors. We have decades of expertise working with buyers and sellers all over America. We also know of properties coming to the market before they’re advertised so you don’t miss out on a single opportunity. From before the property search through closing and thereafter, we offer objective advice, education, knowledge, and advocacy – all at no cost to you. Contact us today for a no-obligation consultation, 314-997-5227.