Triple net lease properties (NNN properties) are properties that have a lease agreement in which the tenant agrees to pay all the expenses associated with the property; that is, real estate taxes, building insurance, maintenance and any other costs specifically associated with the building. The tenant makes these payments in addition to the rent and charges for utilities such as water and electricity. The rental charged for NNN properties is usually lower than for other similar rentals because the tenant is assuming the ongoing costs of the property. Triple net leased properties are popular investment options because they provide low-risk, steady income for an investor without them having to be concerned with the payments and paperwork for the expenses that the tenant takes on.
When a property owner leases out a building to a business through a triple net lease structure, the tenant undertakes the responsibility for paying the property taxes associated with the building, insurance for the building and the cost of repairs and maintenance that the building requires during the term of the lease. Because the tenant is assuming responsibility for these costs, which would otherwise be borne by the property owner, the rent charged for a NNN property is generally significantly lower than that charged for a similar building’s standard lease agreement. The capitalization rate of the building, which is a measure used to calculate the lease amount charged, us thus determined in part by the creditworthiness of the tenant.
While triple net leases have become popular as investment options there are some requirements that need to be met by landlords; they must be able to demonstrate a net worth of at least $1 million dollars (excluding the value of their primary residence) or that they have annual income over $200,000 (or $300,000 in the case of a joint filing). Smaller investors can, however, participate in NNN properties by investing in real estate investment trusts where multiple investors pool their funds to buy into portfolios of such properties.
Triple net lease properties offer benefits to both tenants and landlords. Tenants have more freedom in terms of how they structure the building and can customize it to suit their purposes without having to purchase the building outright. For a landlord, NNN properties are a good source of regular income that come with very few overhead costs and where they do not have to play an active role in the day-to-day management of the property or deal with making regular required payments on it.
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