Georgia Commercial Real Estate | Trip Wilhoit & Patty Burns, Fickling & Company
Trying to decide which types of properties to invest in is hard. There are so many different types of properties that investors can choose from today, and there is often a lot of research that goes into deciding which is appropriate for the type of investment you want to have. If you want to have an investment that offers steady cash flows while remaining more passive, then a triple net lease property is the one that you should be investing in.
What is a Triple Net Lease Property?
Triple net lease properties, also called NNN properties, are commercial investment properties that offer leases to a single tenant. In addition, it is the tenant’s responsibility to pay for the property taxes, maintenance, and insurance for the building and land that the lease covers. These types of leased property are sometimes also called single-tenant net lease properties, or STNL properties. These types of leases have become increasingly popular with investors over the old gross and percentage type leases, and for good reason. There are several advantages that NNN properties offer that regular gross lease properties do not offer.
They Give You a Predictable Revenue Stream
One advantage that you might find desirable with these properties are the extremely predictable revenue streams that they offer. With a normal gross lease property, you would have to consider not only the income from your tenants, but also all of your variable expenses that come with the property. These include expenses like the maintenance costs that come up, property taxes that can change every year, insurance costs that will often fluctuate, and several other expenses that may come up suddenly.
With triple net lease properties, all of these expenses are being paid by the tenant. That means that the only expenses you will have to worry about are the salaries of your property managers and other incidental expenses that are much easier to forecast. Once you add the income you get from your monthly or annual rents, you are left with a very smooth and predictable source of revenue.
They Offer a Passive, Hands-Off Investment
Another great advantage of these properties their ability to create a passive investment feel for the owners. Most landlords have to deal daily with issues in their properties, especially if they own a lot of them. This could be anything from finding out that there is an issue with the heat in one of the units to having to cut checks for insurance policies each month.
When you invest in a triple net lease property, all of these tedious tasks go away. It is now the tenant’s responsibility to pay for and deal with any of these issues. All you have to do is sit back and collect your monthly rent checks.
Tenants Can Find Them Desirable
Often times you will hear that there is nothing good about a triple net lease for the tenants, so why should you bother in investing in property that nobody wants to lease. This is simply not true, and many tenants know this and will try to leverage the fact that this information is out there when signing the lease.
One advantage that is specific to tenants is that there is the opportunity that no major maintenance issues occur and costs do not substantially rise during the lease term. If this were the case, then they would be paying a much lower effective rent rate each year compared to a gross lease or percentage lease property. This is because triple net leases can be offered at lower rent rate, since the cost of running the properties is much lower to you, the owner. With the tenant paying the bulk of the costs, there is no reason to be charging higher rent rates. This hedging opportunity for tenants is often one of the reasons they opt in for this type of lease.
Lower Rent Means Less Vacancy
When you are talking about STNL properties, it is sometimes easy to lose sight of the fact that you only need one tenant for your property to be 100% occupied. Getting this rate of occupancy in any other type of lease is extremely difficult. However, all of the advantages that are offered to the tenant in a triple net lease situation make it incredibly easy to find tenants for their properties, and in turn get you as much return for your investment that is possible. Tenants are drawn to these leases because of their growing popularity and the ability to get premium properties at a fraction of the rent that would be charged under a gross lease.
They Are Perfect for Newer Investors
If you are just starting out in property investments, then these properties are definitely for you. The combination of the features offered to the landlord, including the ability to get predictable returns with minimal involvement in the day-to-day operations of the property means you get a return for very little risk. As long as you get a tenant into the property (which is not generally a problem with these types of leases) you will be able to sit back and watch your returns grow.
Considerations Before You Start Leasing
One of the most important things that you need to consider before you start leasing your triple net lease property is the rent value of the property. As mentioned before, these properties can generally be rented much lower than traditional properties, but this does not mean you should be giving your tenants a major discount. You need to enlist the help of a valuation specialist to see what you should be renting the property for to determine how much you should really be taking off the normal rental payments in order to get the NNN features of the lease.
When all said and done, NNN properties (STNL properties) are extremely advantageous for the lessor. When you invest in a triple net lease property, you can be sure that you are going to get your investment back while carrying very little risk. Trip Wilhoit & Patty Burns, Fickling & Co., located in Macon, will help you find the properties that suit your needs.
Call Trip Wilhoit & Patty Burns, Fickling & Co. today at 478-743-0000.
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Patty Burns, CCIM, ALC
Fickling & Company
Commercial Sales and Leasing
PO Box 310
577 Mulberry Street, Suite 1100
Macon, Georgia 31202
478-951-5100 - cell
478-803-4120 – office
478-742-2015 – fax
Trip Wilhoit, CCIM, ALC