Watch out what you purchase because the meaning may be different in the eyes of the beholder!
Net Net Net Property Or Triple Net Property
These terms are often interpreted differently by investors both buyers, sellers and brokers in different states. Some consider a triple net property as one where the roof and structure is the responsibility of the tenant only, while the same term NNN property or Net Net Net property has the landlord responsible.
There could be a difference of a half of a point cap rate lower or higher depending who is responsible. .20 cents a sq. ft. or more is the usual capital reserve set aside by the owner of the roof and structure if their responsibility.
Read Your Commercial Income Producing Property Lease Carefully
The lease is the only way of determining what is truly correct. Don’t let the broker or seller tell you their version – read the lease carefully. The language could be tricky. Hire a professional real estate attorney to go over the lease and make recommendations before purchasing the asset.
Expect little responsibility or none when buying a triple net lease and make sure the options and the lease are assumable with the same original tenant responsible for the repairs and rent (unless the new tenant is as strong as the one that is leaving the space).
Check The Credit Of The Existing Tenants
The credit of the existing tenant is what you are basing your decision on, thus you want them responsible for the entire lease term. Subleasing is usually permissible but the original tenant still maintains full guaranty of payments to the landlord. No outs in the lease is what you desire as the investor.
Be Wary Of The Language In Your Commercial Investment Property Lease
A roof could cost as much as $4.00 a sq. ft. to replace so a building of 10000 sq. ft. Is about $40,000 to replace. That is why the language is important and a capital reserve set aside each year to replace the roof perhaps every 15 to 20 years depending on the weather of that city.
Know your terms and read leases carefully so you the investor come out ahead.