Many financial advisers would agree that real estate — whether commercial or residential — is a good investment to sink your money in. This is proved by the 2015 numbers — investment in commercial real estate in the United States increased by 85%! Between December 2014 and December 2017, money invested in hotel-related construction went up by almost 60% and money invested in office-related construction went up almost 45%, according to the U.S. Census Data. If you’re thinking about commercial property investments, you should look into triple net property investments. There are many triplet net property advantages for both the investor and the tenant, so it can be an attractive proposition on both ends. If you’ve never heard of triple net leasing, let’s dive in, so you can see all the triplet net property advantages to be had — whether you’re an investor or a tenant.
What are Triple Net Leases?
A triple net lease is sometimes also called an NNN lease or a net-net-net lease. With this kind of lease, the tenant not only pays rent, but also the other associated costs that come with the property. These costs are known as the “three nets,” and arereal estate taxes, property insurance, and any maintenance costs.
However, because the tenant assumes these extra costs, he or she generally pays a lower rent, versus a lease where the landlord pays for the real estate taxes, property insurance, and maintenance costs.
Usually, triple net leases can be found more often in the commercial real estate sphere, though industrial and residential properties also can have triple net leases and are appealing to all levels of investors for a variety of reasons. We’ll get into those below.
What Triplet Net Property Advantages Are There?
Lower Management Responsibilities
For a landlord, a triple net property gets them off the hook in terms of management. They’ll still be responsible for handling tax returns, bookkeeping, and any refinancing, but they don’t have to worry about other big components like property taxes or maintenance. If the investor or landlord has a full-time occupation elsewhere, this can be extremely advantageous. They don’t have to worry about taking the time to do maintenance or look into issues — and on the flip side, the tenants can take care of maintenance and repair on their own schedule, without being subjected to the landlord’s timetable.
Good Cash Flow
Triple net properties offer a good, stable source of income, because leases are set for much longer — around 10 years. This takes some of the stress off the landlords’ shoulders — they won’t have to scramble to find new tenants on an annual basis or have the building sitting vacant and not earning. Furthermore, they may get unique tax benefits from having a triple net property.
For the tenant, they’re faced with more options when it comes to financing, a lower entry point when it comes to investing, and a lower rent (since they’re picking up taxes, maintenance fees, and insurance), which can all be huge.
As touched upon briefly above, a tenant will also be able to exert more control over their property and what gets done to it. Repairs can be handled more quickly and they have a greater “ownership” over it.
Why Should I Be Looking at Commercial Properties?
As mentioned before, the demand for commercial real estate is high. Between 2012 and 2017, there was an annual growth of almost 4% when it came to commercial real estate — helped in part by the economy’s overall recovery. Office demand was high in 2017’s third quarter and leasing activity hit a two-year high with almost 62.5 million square feet. Furthermore, in 2016, almost 75 billion dollars of commercial buildings were built in the United States.
It’s clear there’s a hunger for commercial real estate that’s still growing. Look into triplet net property advantages versus more traditional leases and see where your investments can take you.