Triple net lease properties, also known as NNN properties are an excellent opportunity for investment if you’re a baby boomer, retiree, doctor, attorney, or another type of investor who would like to take some time off from clogged toilets and late rents.
That’s because triple net lease income properties don’t need you to be involved in any of the management responsibilities normally required of other income property owners.
Instead, the tenant is responsible for all of the maintenance costs, as well as taxes and insurance. This makes triple net lease properties ideal for investors considering passive income opportunities that will continue to produce a steady income over the long-term.
Triple Net Lease Properties Attract Strong Tenants
NNN properties are known for their financially strong tenants. These tenants are what is called “investment grade” tenants, which means they possess a credit rating of BBB- are higher. Credit ratings are determined by Standard and Poor, Moody’s, and Fitch, and refer to the tenant’s financial stability.
Examples of tenants that are investment grade include Walgreen’s, AutoZone, Dollar General, McDonald’s, and other well-known franchises. As part of a well-run company, individual franchisees are backed by the parent company and given substantial support in order to ensure their success. In the unlikely event of failure, the parent company guarantees payment of the franchise’s financial responsibilities.
Triple Net Lease Properties Are Ideal As Buy And Hold Investments
There are numerous ways for commercial real estate investors to make money. Some of these involve renovating a property and reselling it once the equity increases. Another method is to buy and develop raw land. Other investors prefer the day to day intricacies of running a shopping center or office complex.
Net lease properties are ideal for investors who like to “buy and hold.” Since NNN properties are in excellent condition, are leased to quality tenants in an excellent location, and leases run from 10 to 25 years, they offer a steady profit that accrues equity with the passage of time.
The advantage of receiving a steady check once a month for the next 25 years is one of the many advantages that investors, particularly investors approaching retirement, appreciate.
No Need To Restrict Yourself To Investing In Your Home State
Normally when investing in either residential or commercial real estate, it’s common for investors to stick to properties that are not far away from where they live. After all, if you are managing the property yourself, or anticipate that you will need to meet with a management company, or oversee other aspects of your investment, it’s easiest to choose a property within a few hours drive.
Investors who purchase triple net properties, on the other hand, may want to consider purchasing in another state. Certain areas, like Manhattan or Los Angeles, will have very few properties available. Even if you aren’t in an income tax-free state, it is highly likely your state has a retail area that possesses the qualifications necessary for a triple net lease property. Most states have a Starbucks, McDonald’s, Target, or other quality franchise.
These tenants are interested in quality locations, where they occupy a prominent location and there is heavy traffic, the presence of other national tenants, and an established and growing population. As long as these characteristics are present, you will attract a solid tenant who will lease your property for the long term.
Relationships Are Everything
With the growth of the internet, many investors assume that finding the right property is as easy as entering the right search terms.
The truth is that finding the right triple net lease property – as is true for every commercial income property – depends on nurturing the right relationships with a large network of people. That’s because while some investment properties will inevitably pop up on public databases, the majority of properties, and in particular trophy properties, won’t ever show up.
Instead, the broker representing the seller will put out the word on his network that the property is available, and then will wait to see what comes in. There might be twenty or thirty offers that come in for the property in a short period of time, and because it’s a trophy property, nearly all of them will be full price.
Experienced buyers know that not only is the property worth every penny – since it’s equity is expected to increase with time- but they also know that sellers aren’t interested in buyers who lowball and try to get a “deal.” Unfortunately, many inexperienced buyers have discovered that even raising the offer after you’ve offered a lower price won’t help since sellers assume you will be difficult to work with.
Have The Right People On Your Investment Team
An experienced broker offers value throughout the process of buying a property.
Knowing what questions to ask the seller, crafting a letter of intent that will be accepted by all sides, sharing and communicating with a seller and attorney who are at odds with you takes extra finesse.
Then you’ll need to make sure you don’t miss any contract deadlines, be adept at working through some issues (while ignoring others), and draw from past transactions in order to get the best deal possible.
In the same way, that you would insist on hiring the best doctor or surgeon in order to ensure the best care -rather than following a DIY tutorial- making sure you have the right people on your investment team by hiring an experienced broker will save you time, energy, and hundreds of thousands of dollars.