A triple net lease (NNN) property can be an excellent investment choice if you’re looking for real estate that can provide potentially stable passive income. This arrangement can offer many benefits, including reduced responsibilities, operating costs, and overall management.
However, getting the most out of triple-net lease ownership involves finding and retaining quality tenants. When considering this investment type, take the steps necessary to attract and retain the right tenant through a mutually beneficial agreement.
A NNN lease is an agreement in which the tenant assumes responsibility for all costs of property operations and upkeep. Expenses include the following:
Triple net lease benefits can include steady income, low costs, and avoiding property management headaches. However, there are downsides, like an unexpected vacancy if a tenant suddenly leaves or declares bankruptcy. Other potential issues include poor tenant maintenance and unexpected tax increases.
A successful net lease investment depends on finding the right tenant. Pinpointing the tenant to fit your triple net lease space requires the following:
Property condition
The property should meet the tenant’s needs by being well-located, in good condition, and connected to the right infrastructure (including power, water, and sewage).
The property should also be compliant with regulations, including:
Tenant creditworthiness
When evaluating potential tenants for your NNN space, a major issue to consider is creditworthiness. Creditworthiness determines whether a potential tenant can pay rent on time; the higher the creditworthiness, the lower the risk to you, the owner, and the landlord.
Factors contributing to a tenant’s creditworthiness include:
Lease terms
Once you’ve found the right tenant for the space, it’s time to draw up a lease contract.
The contract should focus on the lease terms, such as length, which can last ten to twenty years or longer. The information should also outline the tenant's rent requirements, such as the base rent, additional expenses, and annual increases. As mentioned earlier, the tenant is also responsible for property taxes, insurance, and maintenance.
As the landlord, you also have responsibilities that should be outlined in the lease, like the following:
A well-crafted lease can avoid pitfalls and confusion while ensuring everyone is on the same page regarding their responsibilities.
The key factors that contribute to a well-structured triple net investment include providing a well-cared-for real estate asset and a responsible tenant to fill that property. These elements can help support long-term lease stability and reduce potential risks.
On the real estate side, it’s up to you to address compliance and structural issues. Meanwhile, your tenant should be able to meet the monthly rent while paying other costs and taking responsibility for property operations. Offering a well-functioning property, finding a creditworthy tenant, and reaching a mutually beneficial agreement can help with a NNN investment for your real estate portfolio.
If you’re considering acquiring a triple-net lease property through a 1031 exchange, contact Realized 1031 for assistance. Realized 1031’s breadth of experience, combined with cutting-edge operations and knowledgeable professionals, can help you find an NNN real estate asset that meets the parameters of the exchange while providing a potentially steady income source.
Visit realized1031.com for more information or to set up a no-obligation meeting.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.