NNN Investing 101:
- What property types does NNN Resource focus on?
- What is a Net Lease?
- What is a NNN or Net Net Net or Triple Net Lease Investment?
- Why should I buy a Triple Net Lease Investment?
- Who typically owns Triple Net Lease Investments?
- Will I need a property management company for a Triple Net Lease Investment?
- How much do Single Tenant Triple Net Lease Investments cost?
- What is a Cap Rate?
- How much money do I need to start investing in Triple Net Lease Investments?
- What criteria is most important for Triple Net Lease Investments?
- Which retail tenants typically sign Single Tenant Triple Net Leases?
- Should I consider out-of-state Triple Net Lease Investments?
- Is financing available for Triple Net Lease Investments?
- Should I have broker representation when buying a Triple Net Lease Investment?
- What is a 1031 Exchange?
- Is a Triple Net Lease Investment a “like-kind” property for a 1031 Exchange?
What property type does NNN Resource focus on?
NNN Resource has a nationwide focus on investment grade, well located, single tenant, long-term, Triple Net (NNN) or Double Net (NN) leases in freestanding buildings with national credit retail tenants.
See the Resource Center for additional information regarding Triple Net (NNN) Lease property.
What is a Net Lease?
In commercial real estate, the lease for the tenant of a “Net Lease” requires the tenant (e.g. Walgreens, McDonalds, 7-Eleven, Chase Bank, etc.) to pay, in addition to rent, some or all of the property related expenses such as: property taxes, insurance, utilities, maintenance, repairs and capital expenditures. A “gross lease” on the other hand, requires the landlord to pay all of the property related expenses.
See the Overview of NNN Investments page for additional information regarding Net Lease Investments.
What is a NNN or Net Net Net or Triple Net Lease Investment?
A “Triple Net Lease” (also called a “NNN Lease” or “Net-Net-Net Lease” or “Absolute Net Lease”) is a type of net lease wherein the tenant is responsible for ALL maintenance and expenses of a property (including the roof, structure, foundation, HVAC, parking lot, etc.). Not all Net Leases are Triple Net Leases. There are actually several types of Net Lease Investments with Triple Net being the most sought after, but not necessarily the most common. Each “N” stands for an expense category the tenant is responsible for paying. The first “N” represents property taxes, the second “N”, insurance and the last “N” represents maintenance.
A “Double Net Lease” or “NN Lease” occurs when the tenant is responsible for taxes and insurance and perhaps even some of the maintenance expenses, but not all. If the Landlord is responsible for any of the expenses of the property (even if it’s only roof and structure), it is not considered a Triple Net Lease even though brokers and owners commonly make the mistake of referring to the property as “NNN”.
See the Resource Center for additional information regarding Triple Net Lease Investments.
Why should I buy a Triple Net Lease Investment?
A Single Tenant Triple Net Lease Investment is the best real estate avenue for generating passive income (i.e. income you don’t have to actively work for). It’s real estate ownership that isn’t just some paper document, but it’s a physical asset you can visit and touch. Single Tenant NNN Leases in a prominent location with a credit tenant, a strong guarantor and several years remaining on the lease term provide a low risk, hassle free real estate investment option for a property owner that wants investment grade real estate without the headaches of dealing with frequent vacancies, property managers, and maintenance issues such as leaky roofs, HVAC problems and clogged toilets. Furthermore, tenants are highly motivated to maintain and even improve the property as it’s their place of business. Your responsibility will be making sure you deposit the rent check each month :).
See the Pro’s and Con’s of NNN Investments page for additional information regarding Triple Net Lease Investments.
Who typically owns Triple Net Lease Investments?
Someone just like you. Really, anyone who wants a low risk, hassle free property usually trying to increase their passive or retirement income. This often includes retirees, busy professionals or people completing a 1031 Exchange, but it can be anyone with the means and desire to own this type of investment.
See the Resource Center for additional information regarding Triple Net Lease Investments.
Will I need a property management company for a Triple Net Lease Investment?
NO! At least you won’t if it’s a single tenant absolute Triple Net (NNN) lease and in some cases even a Double Net Lease (with certain minimal landlord responsibilities) since the TENANT is responsible for the maintenance and upkeep of the property and given it’s their place of business they are highly motivated to keep it maintained. As a result, a property management company is unnecessary.
See the Resource Center for additional information regarding Triple Net Lease Investments.
How much do Single Tenant Triple Net Lease Investments cost?
It varies, but the typical range is from $1MM to $20MM with the average price being in the $2MM to $5MM range.
See the Resource Center for additional information regarding pricing for Triple Net Lease Investments.
What is a Cap Rate?
A cap rate (or capitalization rate) is often talked about with net lease investing but what is it? A simple definition is the cap rate is the rate of return of a real estate investment based on the net operating income (NOI) and the value of the property so it IS a rate of return, but I wouldn’t go so far as saying it is THE rate of return :).
See the Overview page of the Resource Center for additional information about cap rates and to see an example of a cap rate.
How much money do I need to start investing in Triple Net Lease Investments?
It depends on the quality of Net Lease Investment and whether or not you will be financing the purchase or paying all-cash. Typical financing may require 30% down (i.e. $300,000 down on a $1,000,000 purchase price). Keep in mind that time is money. The earlier you can begin investing, typically the better off you will be.
See the Resource Center for additional information regarding Triple Net Lease Investments.
What criteria is most important for Triple Net Lease Investments?
(1) Location – I’d rather have an average tenant in a good location than a good tenant in an average location. (2) Tenant – who is the tenant and what is their credit strength? (3) Guarantor – who is guaranteeing the lease and what is the likelihood they’ll be able to fulfill their financial obligations? (4) Lease Term – how many years are remaining for the tenant on their lease term and option terms? (5) Rent Escalations – what, if any, are the rental increases?
See the Successful NNN Investments page for additional information regarding Triple Net Lease Investments.
Which retail tenants typically sign Single Tenant Triple Net Leases?
This really could be any retailer that leases their space in a stand alone building, but to give you an idea of what we typically see… Popular national Restaurant category tenants include: Chick-Fil-A, McDonalds, Panera, Starbucks, Taco Bell, Buffalo Wild Wings, Wendy’s. Pharmacy tenants: Walgreens, CVS, Rite Aid. Grocery: Kroger, Trader Joe’s, Whole Foods. Banks: Chase Bank, Wells Fargo, Bank of America. Mid Box Misc: Hobby Lobby, Aaron’s Rents, Tractor Supply, Staples. Convenience: 7-Eleven, Circle K. Auto Parts: AutoZone, O’Reilly Auto Parts, Advance Auto Parts. Wireless: Verizon, AT&T. Dollar Stores: Dollar General, Family Dollar, Dollar Tree. Department: Walmart, Target, Kohl’s. Home Improvement: Home Depot, Lowe’s.
See the Resource Center for additional information regarding Triple Net Lease Investments.
Should I consider out-of-state Triple Net Lease Investments?
Absolutely. A Net Lease Property in a different state expands your choices and consequently may be better at meeting your investment objectives and fulfilling your criteria requirements. One of the beautiful things about Single Tenant Triple Net lease investments is they can be hassle free no matter which state they are located in. In addition, states such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming are income tax free and may provide some additional tax benefits.
See the Resource Center for additional information regarding Triple Net Lease Investments.
Is financing available for Triple Net Lease Investments?
Yes. Lenders typically love Single Tenant Triple Net Lease Investments because most are well located and occupied and guaranteed by investment grade tenants. As a result, there are usually many financing options for Net Lease Investments.
See the Resource Center page Financing for NNN Investments for additional information regarding Triple Net Lease Investments.
Should I have broker representation when buying a Triple Net Lease Investment?
YES! It’s nearly impossible for a broker to adequately represent both the buyer and the seller without having a conflict of interest. Listing agents represent SELLER’S, not the buyer, hence it is critical you select an experienced and trustworthy broker to represent your interests. In addition, the seller is almost always responsible for paying the buyer’s broker commission so why wouldn’t you have a broker to represent your interests?
See the Resource Center page Buyer Broker Representation for additional information regarding broker representation with Triple Net Lease Investments.
What is a 1031 Exchange?
In basic terms, a 1031 Exchange is the trade or exchange of one investment asset for another that allows you to defer your capital gains taxes which are typically due at the time of sale. Example: I sell investment property A and use the proceeds, without having to pay capital gains taxes, to purchase investment property B. Per Internal Revenue Code (IRC) Section 1031 “Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.”
See the Resource Center page 1031 Exchange Information for additional information regarding 1031 Exchanges.
Is a Triple Net Lease Investment a “like-kind” property for a 1031 Exchange?
It depends on the property you are selling. Both the property you are selling and the property you are purchasing must meet certain requirements. Per Internal Revenue Code (IRC) Section 1031 “Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. Both properties must be similar enough to qualify as ‘like-kind.’ Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate.” Example: I sell my rental homes or bare land or office building or apartments and utilizing a 1031 Exchange I purchase a Single Tenant Triple Net Lease retail property.
See the Resource Center page 1031 Exchange Information for additional information regarding 1031 Exchanges.
