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What is an Absolute Net Lease?
In commercial property investing, there are numerous types of leases with different expense structures. Though not typical, the simplest is a gross lease, in which the tenant pays a base rent, and the owner is responsible for managing all other expenses, including taxes, insurance, maintenance, and repairs. Net leases are more popular than gross, with subtypes single net, double net, triple net, and absolute. Generally speaking, a net lease assigns the following expenses to the tenant:
Are Triple Net Leases Good Investments?
A triple net lease (NNN) consists of three nets — taxes, insurance, and maintenance. The tenant pays for all three. The landlord is responsible for capital expenditures related to structural issues of the property. The landlord may also have to prep the space for a new tenant.
What Is Included In A Triple Net Lease?
A triple net lease, also called a NNN, is a popular commercial real estate lease type. In a NNN, the tenant pays for all expenses except structural and some insurance. Basically, the tenant is paying only for their use of the property. The tenant’s responsibilities include three nets:
What Is A Triple Net Lease Agreement?
Commercial leases take various forms, and the type you choose, either as a tenant or an investor, may impact your financial results. A gross lease means that the landlord (owner) covers all the property's operating expenses with the tenants paying rent for their respective space, perhaps with a load factor for common areas. Sometimes the utility costs are included in the rent, and at other times they are charged separately by the tenant. In a modified gross lease, the tenants pay rent plus a portion of the building’s annual operating expenses, subject to individual negotiations.
What Are Triple Net Fees In A Lease?
Commercial property leases can take several forms. There are fundamental gross leases in which the tenant pays rent and usually utilities. Gross leases are most like residential rentals in that the owner bears the operating costs of the property. There are leases on the opposite end of the spectrum called absolute leases. The tenant assumes responsibility for virtually all property expenses, including real estate taxes, insurance, maintenance, and repairs. Large national clients generally undertake these. In between these extremes are the categories of net leases (single, double, and triple), which shift some operating expenses from the property owner to the tenant or tenants. Typically, a commercial real estate investor may look to one of the net lease options to reduce property oversight and enjoy stable and predictable cash flow. The net lease usually includes the following:
The Risks of Investing in Single Tenant NNN Properties
“Better safe than sorry” is an adage that often gets overlooked in the world of real estate investing. When evaluating a potential property, calculating the expected return is relatively easy, but understanding the associated risks is really difficult. What’s a real estate investor with a lower tolerance for risk to do?
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