By definition, the triple net lease is a type of lease structure in which a tenant is responsible for paying all the operating costs associated with that property. Precisely why investors consider it as a “turnkey” investment since they don’t have to pay for any operational expenses.

There are many reasons for commercial property owners or investors to use this form of lease structure. To begin with, it is one of the best ways to generate some stable income, thus allowing them to grow over time. Other than that, low touch management, long-term leases, and not being responsible for expense inflation make NNN leases quite a catch.

Having said that, you need to have an idea about Triple Net Leases to make an informed decision.

What the NNN includes (and not includes)

While it’s true that the tenants are responsible for paying the operational costs. However, even if you enter an absolute triple net lease, there are some things that tenants won’t pay. So, you must look for these terms when looking for a Triple net lease for sale. What is that? It includes:

• The owner’s legal costs
• The accounting costs
• Fines/ fees not caused due to the fault of the tenant.

Ideally, the tenant will have to pay for rent, maintenance, property taxes, insurance premiums in addition to other utilities.

Risks Involved

There is one misconception when it comes to triple net lease investments that they are risk-free. While it’s true that they offer a variety of benefits, there are a few risks involved. For instance, since these properties largely depend on a single tenant, a tenant’s credit risk is something you must consider.

Another thing to consider is that even if you have a favorable tenant, what will happen if they go bankrupt?

Credit Risk of Current Tenants

This is another crucial factor to consider when looking for NNN lease properties. Remember, a lease is only strong if the tenant is favorable enough. So, you must analyze the financial statements of the tenant to understand any downside risk.

Usually, single-tenant net lease deals involve public-traded organizations like Starbucks, Walgreens, and others. All you have to do is pull up their credit ratings and read their stock analysis reports. However, if any private company uses the property, you’ll have to do more than just analyze stock reports. This is why taking the help of net lease advisors is essential.

Final Words

A triple net lease is one of the popular types of leases often loved by investors and commercial property owners when it comes to real estate. Not only are the expenses relatively lower than other legal structures, but the owners also have less responsibility to manage day-to-day operations.

This is beneficial, especially for the properties that have only single tenants. However, you must consider all the benefits and risks involved before saying yes to investing in any triple net lease property.

Are you thinking of buying a triple-net lease? Hopefully, this information will guide you in the right direction.