What Are the Advantages of Investing in Triple Net Leases in Florida?

Florida is well known for its warm weather, sun-soaked beaches, amusement parks, and the Kennedy Space Center, but it also can be a great place for business. 

Florida has long been called a business-friendly state due to its low 6 percent state sales tax and lack of a personal income tax. Although Florida-based corporations are subject to a 5.5 percent income tax, all S-corps, limited liability companies, and sole proprietorships in the Sunshine State are exempted from income taxes at the state level. Florida also doesn’t impose any estate or inheritance taxes.¹

These are just a few reasons why Florida is considered a great place for business – and why 18 Fortune 500 companies, including Publix, Darden Restaurants, Royal Caribbean Group, and Lennar, are headquartered in Florida. With more than 21.7 million residents, Florida is the third-most populous state in the U.S. Those millions of consumers also need places to shop, and in this article we’ll discuss the potential advantages of investing in a triple net lease in Florida. 

Why Invest in Triple Net Lease Properties 

 For many investors, triple net leased properties, also called single tenant net lease or NNN lease properties, make sense because they don’t require day-to-day management duties like other types of commercial real estate investments. That’s because with a NNN lease, the tenant is the sole occupant of the building and assumes virtually all of the operational aspects of the property, including paying property taxes and building insurance, common area and building maintenance, utilities, and any other direct costs, along with rent. 

Since the tenant is doing the bulk of the heavy lifting, they usually pay lower monthly rental rates than what’s common with other types of commercial leases. However, a triple net lease structure can free up a great deal of time for property owners to pursue other interests or manage more time-intensive investments. Landlords also can expect to receive a steady income stream, often from credit-grade tenants that have a large national presence. 

Leases can be for up to 20 years, which can significantly reduce the risk profile for commercial real estate investors, and annual or periodic rent increases are usually baked into single tenant net lease agreements. As a last point, investors with a long-term horizon have the potential to realize significant equity by using their tenant’s rental payments to pay down the mortgage loan on their properties. 

Why Invest in Triple Net Leases in Florida

Florida’s favorable tax structure can have many potential benefits for commercial real estate investors, especially those who form LLCs, S-corps, or sole proprietorships, since they won’t face any personal or state-level income taxes. 

Another important potential advantage of investing in triple net lease properties in Florida is the tenants that typically sign single tenant net leases. These businesses include: 

• Restaurants, fast-food, and quick-serve eateries 
• Gas stations and convenience stores 
• Medical offices and specialty medical practices 
• Professional agencies and brokerages 
• Banks and credit unions 
• Pharmacies and drug stores 
• Auto parts retailers 
• Dental, orthodontics, and optometrist practices 
• Coffee shops and juice bars 

Many of these establishments require heavy foot traffic to be successful, and as noted, Florida has no shortage of residents. Additionally, according to Enterprise Florida, the statewide economic development agency, restaurants and eateries and physicians' offices are among the state’s fastest-growing industries.² Lastly, the State of Florida, especially South Florida, is recording incredibly robust tourism numbers – more than 36 million people visited the Sunshine State in the first quarter of 2022.³ Those visitors provide an additional client base for many of the businesses that occupy NNN lease properties in Florida.
 

Disadvantages of Triple Net Lease Investments in Florida 

Triple net lease properties can have some potential disadvantages when compared to other commercial lease structures. These may include: 

• Lower rental rates since the tenant assumes much of the responsibility for the property. 
• Little room for adding value since you can’t change the lease rate or make a value-added improvements to the building during occupancy. 
• Risk of total vacancy if the tenant leaves the property at the end of its lease or breaks its lease. 
• High rollover costs to improve the property for a new tenant, and difficulty finding a lessee to fill a vacant space. 
  
  

The Bottom Line 

Florida’s immense population and continued population growth provide a large customer base for a variety of businesses that prefer to operate under triple net lease agreements. Florida also is a premier destination for massive numbers of domestic and international travelers from around the world. 

Investors seeking triple net lease investment opportunities in Florida may be challenged by stiff competition and top-of-market pricing since coastal real estate is in high demand. According to the National Association of Realtors, Florida in the middle of 2021 had five of the Top 10 strongest commercial real estate markets across office, industrial, retail, hospitality, and multi-family properties.⁴ Investors can work with trusted commercial brokers or 1031 investment experts to find opportunities to park investment capital in triple net lease properties in Florida. 

Sources:

1. Florida Taxes – A Quick Look, State of Florida, https://www.stateofflorida.com/taxes/ 

2. Fast Growing Industries, Enterprise Florida, https://www.enterpriseflorida.com/why-florida/business-climate/ 

3. Florida Tourism Continues to Grow in Q1 2022, Visit Florida, https://www.flgov.com/2022/05/13/florida-tourism-continues-to-grow-in-q1-2022/

4. Florida Has Five of Top 10 Strongest Commercial Markets in 2021 Q2, National Association of Realtors, https://www.nar.realtor/blogs/economists-outlook/florida-has-five-of-top-10-strongest-commercial-markets-in-2021-q2