Single-tenant triple net lease (NNN) properties give you total ownership of a freestanding, single-tenant commercial real estate property. Because the tenant pays for building insurance, property taxes, and building maintenance, in addition to rent and utilities, a triple net lease property is ideal for first-time investors who need a solid investment that can serve as a catalyst for wealth building.
When they make a triple net lease property investment, investors typically purchase a building and the land it occupies. However, purchasing only the land is also common. Westwood Net Lease Advisors will explain the pros and cons of each of option. Our customers can depend on our financial specialists to provide the value-added services necessary to make a wise purchase, such as analyzing cash flow and debt service, researching tenant credit ratings, and more.
Whether you purchase ground or a building and the ground on which it sits, we will broker a transaction that lets you own an undivided interest in the property. Unlike real estate investment trust (REIT) and crow funding investments, in which you own a portion of an investment property, and thus receive a fraction of its income, we will help you reap the profits of owning your own commercial real estate property.
CHOOSING A PROPERTY
A wide variety of triple net lease properties are available for purchase at any time. When making a real estate investment, most investors work with a real estate brokerage firm that has a proprietary database of thousands of on-market and off-market properties. The firm will be diligent in identifying properties that meet the investor’s wants and needs. Everything from the condition of the building to the financials of the tenant that occupies the property will be thoroughly evaluated.
The price of prime triple net properties varies widely. On the low end, prime properties can cost $750,000 or less. On the high end, they can easily reach the $20 million range. Dollar stores and fast food restaurants such as McDonalds tend to fall in the low to medium price range for triple net properties, while drugstores and big box retailers such as Wal-Mart are typically priced at the higher end. Westwood Net Lease Advisors can show you properties in various price ranges.
APPLYING FOR FINANCING
Most investors take out a loan to acquire triple net lease property. If you choose to use financing, it is important to work with a qualified mortgage broker to find the best financing arrangement for the type of property you wish to purchase. Lenders typically require a minimum down payment of 25% to 35% for investment grade properties (properties that have an S&P credit rating of at least BBB-) and 35% to 45% percent for most other properties.
BENEFITS OF OWNERSHIP
There are several benefits of owning a triple net property that an investment grade tenant occupies. If you use financing to acquire the property, the first benefit is a relatively short ROI period, the projection of which is based on an analysis of factors including the tenant’s credit rating, the location of the property, the capitalization rate of the business, and the terms of the loan. Additional benefits of owning a triple net lease property include:
- No responsibility for management or maintenance
- Financial security due to a long-term property lease
- Easy to sell or trade in 1031 transactions
- Easy to own while living in an area far away
Unlike single net properties that require you to pay for building insurance and property maintenance, and double net properties that require you to pay for property maintenance, triple net lease properties transfer the traditional expenses of owning a property to the tenant. Consequently, you receive a significantly higher net income from the property, and enjoy owning a passive real estate investment that doesn’t require you to perform traditional landlord duties.