Buying and selling properties is one good way to build wealth and attain financial freedom. In fact, according to a report by CNBC, it is still the best investment a person can make today.
Now, among the commercial real estate investments that you can consider are triple net lease (NNN) properties. In a way, these properties provide you with a steady stream of income without too much risk.
How Does Triple Net Lease Investment Work
When you invest in an NNN property, you are buying a commercial property that you lease out to a tenant or lessee who should agree to pay all the expenses of running the property, such as maintenance, insurance, and taxes, in addition to the rent and utilities. However, because the lessee is responsible for these costs, the rental rate that you can place on your property will be much lower than that of a standard lease agreement.
Typically, you can invest in NNN properties if you are accredited with a net worth of at least $1,000,000, excluding the value of your primary residence or $200,000 in your income. However, this does not mean that you cannot engage in this type of investment if you are a small investor. You can still do it by investing in real estate investment trusts (REITs) that have NNN properties in their portfolios.
For more NNN information that you can use in coming up with a well-informed decision in starting your investment journey, you should seek out advice from brokers who specialize in these properties.
Benefits of Investing in NNN Properties
While the monthly income you get from NNN properties is lower than other commercial real estate investments, there are special benefits they bring to the table which you will not find in other property investment vehicles.
Fewer Management Responsibilities
Owning an NNN property grants you the luxury of minimal management, especially if you only have one tenant. After all, the lessee will have most of the responsibilities in managing and maintaining the property, as well as handling the expenses.
As for you as the landlord, you only need to take care of bookkeeping, processing tax returns and refinancing the property. This gives you more time for other important things in your life.
As previously implied, you do not have to worry about putting a lot of time into maintaining the property because the tenant will do it for you. This is beneficial if you have a full-time job or other properties to tend to.
Wide Range of Financing Options Available
Typically, NNN properties (especially those for single tenants) are written against the lessee’s credit and the property’s market value. For this reason, you will have various financing options at your disposal when investing in such properties.
Stable Cash Flow for the Long Term
A lease agreement on an NNN property typically spans 10 years or more. This gives you a stable stream of rental payments in the long run. Unlike short-term leases, you do not have to search for tenants every now and then when your property gets vacant.
This is probably the best advantage of NNN property investment, especially if you are a small investor. Generally speaking, single-tenant properties are more affordable than other types of commercial properties, with prices starting as low as $500,000. This means you can get your return on investment (ROI) pretty quickly.
Generally speaking, the benefits of NNN lease properties all boil down to greater freedom on the part of the investor. This is why more and more people are attracted to this kind of business.
Finding the Right NNN Properties
While NNN properties bring about great benefits, it is still important to know that not all of them are created equal. So, how do you pick a property that will truly give you the best returns and help you achieve your investment goals?
1. Find a good location.
Tenants come and go, so it is best to invest in an NNN property that is located in an area with easy street access and is clearly visible to passers-by. Better yet, it should also be close to anchor stores, as these businesses help attract shoppers.
Of course, you should invest in a place where tenant demand is high. So, in the event that your tenant decides not to renew your contract, you can easily find a new lessee in no time.
2. Consider the potential businesses that would rent the property.
The success of the franchise or business that is renting the property will also reflect your investment success. So, when looking for reliable NNN properties for sale, you should consider those which are previously or currently occupied by recession-proof establishments, such as gas stations, convenience stores, retail stores, fast-food chains, pharmacies, and automobile service centers.
You can start by looking into big brand names, like 7-Eleven, Walgreens, Jack in the Box, and Dollar General.
3. Check the tenant’s creditworthiness.
This is a very important step when you are looking to buy an NNN property with an existing tenant. Basically, you are purchasing the property for the income stream generated by rental payments under the lease. With that in mind, it would be good if the tenant has a good history of making rental payments on time.
Regardless of the tenant, it is important to ask the seller for any financial statements that prove the tenant’s creditworthiness.
4. Get the right financing option for your purchase.
Once you find potential triple net properties for sale, it is time to find the best ways to finance your investment. Well, there are many financial solutions you can choose from. For example, you can take out a loan from your local credit union. Or, you can use your bank. No matter which route you take, just make sure the terms and conditions suit your circumstance.
5. Seek help from an NNN broker.
One sure-fire way to prevent any problems when investing in NNN properties is to seek help from a broker specializing in triple net lease. Getting started can be difficult for new investors, and these professionals can help make the process easier. They guide you in navigating the market and selecting the properties that will give you the best returns.
Undoubtedly, buying NNN properties is one of the best commercial real estate investments that you can make, with all the benefits it brings. Not only will it require less effort on your part but also give you a stable source of long-term income.
However, like any other form of investment, you still need to take utmost care in choosing which properties to buy. Better yet, you should seek the help of professionals who know the market well. With them, you can select the perfect properties to add to your portfolio and help you achieve your investment goals.