FAQ: Single Tenant Triple Net (NNN) Leased Properties
The following are frequently asked questions relating primarily to Single Tenant Triple Net (NNN) Leased Properties. The best way to answer these questions is to layout the benefits of NNN investing:
Why Triple Net Properties?
NNN Properties or NNN Lease Properties, as they are referred to, are the best performing sector of the real estate marketplace. This sector has lost the least amount of value during the recession, yet rallied the quickest.
Net-leased properties are in high demand as a 1031 Tax Deferred Exchange solution or as a private investment into commercial real estate. Net-leased properties are great 1031 replacement options because they are typically management-free and the leases are always signed by credit tenants. TripleNet Investors does not purchase franchised owned properties, just those that are owned by major corporations listed on both major stock exchanges.
TripleNet Investors assists several major retailers and corporations in structuring and negotiating the direct sale-leaseback of their properties. These iconic brands permeate the NNN arena, ranging from fast food restaurants (McDonalds, Burger King and Taco Bell), to auto parts and drug stores (Walgreens, CVS and Rite-Aid). These retailers and corporations produce much higher returns which is why NNN Properties have been and still are the king of the commercial arena.
Describe Typical NNN Properties that are For Sale
NNN Properties are usually free standing buildings, built by a developer, who in turn has a pre-approved tenant agreeing to take responsibility for maintenance, taxes and insurance during a long lease. This leaves the investor with little else to do but collect checks.
Additionally, our clients/investors will purchase already built buildings or individual properties or NNN Properties, either alone or in limited partnerships with a few other investors. These properties/buildings will then be leased out to occupants such as drug store chains, fast food restaurants, dollar stores, medical outfits, and in some cases big box retailers like Home Depot.
NNN Properties are generating annual returns of as much as a 10% internal rate of return while individual investors and small groups of partners generally invest $500,000.00 to $5,000,000.00 per building. These returns have significantly beaten the majority of the Dow Jones stocks over the past year. In other words, now is the time to buy NNN Properties!
NNN Properties were not immune to and suffered as well during the recession, but less than other types of real estate. Whereas overall commercial prices fell by 40% during 2007-2010, prices for NNN Properties fell only by about 15% and have since recovered to even higher valuations. NNN triple net lease properties can diversify your portfolio as well as stabilize your other riskier investments.
How to Determine your Risk Reward Tolerance Levels for NNN Properties
As with investing in general, NNN Properties are based on risk: the more you’re willing to take, the greater your potential returns. Several important factors need to be considered in determining a NNN Property’s riskiness: the credit worthiness of the tenant, the location, physical condition and functionality of the property, and the remaining term on the lease (shorter is riskier). Also important: the occupancy cost or health ratio, defined as the percentage the store pays in rent relative to its store sales (the lower the ration, the better). Besides overall economic risk, there’s the risk of picking a tenant whose product or service might fall out of favor. Affecting NNN Properties may come with the changing consumer trends, which can erase cash flow of NNN lease properties, as happened with the video rental business during the past decade (Blockbuster & National Video). You need a great tenant and you need an optimal location.
Positive Outcomes for NNN Properties
As with most income properties, investors can come out ahead or behind on NNN Properties in two ways: through price appreciation and income. The best measure of income potential is the so called capitalization rate, or the net operating income divided by the purchase price of a property. In recent months, cap rates have been falling because property prices nationally are rebounding. More investors are going after fewer high quality properties under the format of NNN triple net lease structure, driving prices skyward. This is considered a positive sign for the broader commercial real estate market but it means that the easy money in NNN properties might be subsiding and finding properties for sale, more difficult.
TripleNet Investors maintains relationships with the top builders in this field as well as brokers who have both experience and inventory in NNN properties.
Are there Several Lease of NNN Properties Structured Under Commercial Lease NNN’S and NNN Lease Type Agreements?
Short answer: yes. However, the most respected and desirable NNN property to purchase and lease from the investor’s stand point is the NNN Ground Lease that is described in the NNN lease definition language as:
- An NNN lease agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned over to the property owner. A ground lease indicates that the improvements will be owned by the property owner unless an exception is created, and stipulates that all relevant taxes incurred during the lease period will be paid for by the tenant.
- Regarding NNN Properties For Sale, NNN lease agreements or commercial lease NNN’s will normally be fee simple arrangements where the investor will own both the buildings and the land. These usually sell for higher cap rates due to the NNN lease agreements that they are written under.
- Additional NNN lease properties for sale include industrial, medical and office buildings of all varieties. An example is a Fed X warehouse normally leased by the parent company for 10 years at a fixed rent, lease type NNN, with options to renew.
- Walmart may be the best illustration of NNN properties for sale with the combination of safety of the credit tenant under a “triple net lease( NNN)” agreement and long term rent. Because this is considered a NNN lease property, it becomes very desirable with the investment community.
- NNN Properties continue to be the most popular and competitive leases on the market.
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