The Realized Team’s Picks
Navigating Lease Terminations and Extensions in Triple Net Leases
Many investors gravitate towards triple net, or NNN, leases because of the stable cash flow and hands-off involvement in daily operations. These benefits are often long-term, especially since NNN leases last a decade or more. What happens, then, when the lease is either terminated or extended? These moments, when the tenant chooses to either leave or stay, play a significant role in cash flow, property value, and long-term investment strategy.
Portfolio Diversification Using Triple Net Lease Investments
Diversification is one of the most powerful strategies you can implement as an investor. Exposure to diverse industries and geographic locations helps increase cash flow and serves as a buffer when one sector experiences unfavorable economic conditions. Triple net or NNN lease properties are one type of investment that can help enhance diversification, especially for savvy investors who understand the right approaches to NNN assets.
Legal Considerations for Triple Net Lease Agreements: Key Clauses To Know
When entering into an NNN (triple net) lease, the lease agreement is a critical document that outlines various aspects of the arrangement. The structure itself transfers responsibility for property taxes, insurance premiums, and maintenance costs to the tenant, but these aren’t the only terms that exist in such an agreement. In this article, let’s examine the legal considerations beyond who pays for the three net operating expenses. Let’s take a closer look!
Understanding Depreciation in Triple Net Lease Investments
Investing in triple net lease (NNN) properties can provide immense financial relief for investors like yourself. Since you’re no longer paying for property taxes, insurance premiums, and maintenance costs, you’re less exposed to market volatility. Beyond these advantages, there are other ways you can ease financial burdens — especially with personal income tax. One method is property depreciation, which naturally applies to NNN leases given that a real estate asset is involved.
Tax Benefits of Investing in Triple Net Lease Properties
Triple net lease (NNN) investments transfer three net operating expenses to the tenant: property taxes, insurance coverage, and maintenance costs. This structure alone provides tax benefits to the landlord since they’re no longer responsible for paying property taxes, but this isn’t the only tax advantage. There are plenty of other tax benefits of investing in triple net lease properties.
Managing Renewal Risk in Triple Net Lease Agreements
In a triple-net (NNN) lease investment, the initial lease will eventually expire, and the tenant will have the option to renew. Most investors want the occupant to renew as this provides the smoothest process. However, there’s no telling how tenants will act after the lease is over. This uncertainty creates renewal risk, and being unprepared for it can result in future vacancies or disrupted cash flow.
What Happens If Your Triple Net Lease Tenant Goes Bankrupt?
The success of a triple net (NNN) lease investment largely depends on the tenant, as their stability ensures consistent cash flow to the landlord. What happens, then, if the tenant files for bankruptcy? How will they be able to pay the three net operating expenses? Would the contract dissolve as well?
Mitigating Vacancy Risk in Triple Net Lease Properties
Investors now recognize the many benefits of triple net (NNN) lease investments, such as passive income and long-term stability. However, just like any other investment, there are risks to consider with an NNN lease. One that has a significant impact is vacancy risk, which disrupts cash flow and lowers the investment's value.
Red Flags When Evaluating a Triple Net Lease Property
The opportunities and advantages offered by triple net (NNN) lease properties tend to attract even the most conservative investors. However, some things can be too good to be true. NNN leases are no exception. While there’s appeal from passive income and hands-off involvement, you should still watch out for triple net lease red flags that could threaten your long-term success.
Due Diligence Checklist for Triple Net Lease Investments
You’re finally ready to commit to an NNN lease investment. The promise of stable income, passive investment, and other benefits has led you to find a broker and the best deals. Now that you have a list of prospective properties or tenants, what’s the next step?
