Triple Net Lease Properties: The Benefits, Drawbacks, and What You Need to Know

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Triple net lease (NNN) properties are quickly becoming a go-to strategy for investors wanting reliable, passive income in commercial real estate. Often involving long-term tenant agreements with minimal landlord responsibilities, triple net lease properties can provide stable returns—but they also come with certain risks that should be taken into consideration first. 

In this blog, we’ll explore how NNN properties work, discuss the benefits and drawbacks, and help you determine if this type of real estate investment fits your financial goals for this year. 

Key Takeaways:

1. NNN Properties Offer Passive Income with Minimal Maintenance: Triple net leases (NNN) pass on essential expenses like insurance, taxes, and maintenance to the tenant, making them perfect for investors seeking steady, hands-off revenue.

2. Benefits Exist for Landlords and Tenants: Landlords gain long-term lease stability and reduced management, while tenants benefit from property control, lower base rent, and transparent expenses.

3. There Are Risks Investors Should Know: Despite their appeal, triple net lease properties have risks like high upfront expenses, tenant vacancies, and limited property appreciation, especially in single-tenant setups.

4. Careful Research and Expert Guidance Are Crucial: Success with NNN investments relies on defining criteria, researching tenants, understanding lease terms, and working with experienced commercial brokers.

Defining Triple Net Lease Properties 

A triple net lease is a commercial property lease agreement where the tenant is responsible for paying three major expenses related to the property. 

These expenses include: 

• Insurance

• Property taxes

• Maintenance

An NNN property lease structure takes the burden of operating expenses away from the property owner, or landlord, making it a desirable option for those wanting a hands-off investment. Triple net leases are typically used in office or single-tenant retail spaces occupied by national brands like Starbucks, Walgreens, or Dollar General stores. 

The Benefits of Triple Net Leave Properties 

NNN property leases can provide distinct benefits for landlords and tenants, making these commercial real estate options a growing and popular choice. 

Advantages for Landlords

More property owners are investing in triple net leases because they’re an efficient and reliable investment model. For many landlords, this property lease structure makes owning commercial real estate simpler and more predictable.

Passive and Passive Income

Landlords enjoy reliable income each month with fewer unexpected expenses, as tenants cover the insurance, property taxes, and maintenance costs.

Reduced Management Responsibilities

Because the tenant is responsible for most of the operating costs, landlords don’t need to handle day-to-day maintenance concerns or administrative tasks.

Long-Term Lease Security

NNN leases often span 10 to 20 years, providing lasting stability for landlords with less turnover and a guaranteed revenue stream over the life of the lease.

Desirable for 1031 Exchanges

Triple net lease properties are typically used in 1031 exchanges, allowing landlords to defer capital gains taxes when reinvesting in similar real estate.

Benefits for Tenants

Triple net leases can be a practical solution for tenants looking for long-term control and stability over their rental space. It’s a common choice for companies that want to establish a consistent presence in a single location with steady and reliable tenants. 

Greater Control Over the Property

NNN tenants manage operational and maintenance decisions, giving them more flexibility to align the property space with their business and brand needs. 

Stable and Long-Term Location 

Triple net property leases often include long-term renewal and term options. These terms allow tenants to establish a strong presence in a consistent and stable location. 

Transparent Expense Structure 

With tenants handling the responsibilities and costs of insurance, taxes, and maintenance, NNN tenants can budget with more accuracy and better avoid hidden expenses often included in gross leases. 

Lower Base Rent 

Because tenants take on additional costs, NNN property base rent is often lower than it would be in a gross lease, which can free up funds for other business investments. 

Triple Net Lease Drawbacks and Risks to Consider

There’s no doubt that triple net leases provide clear benefits for tenants and landlords. However, they also come with drawbacks and risks that investors should consider. Taking the time to evaluate potential risks and understanding each one is essential before moving forward with an NNN property solution. 

Potential risks and drawbacks to consider include: 

• Tenant vacancy risks

• Lack of appreciation potential 

• High entry expenses

• Market and economic exposure 

Triple Net Lease Properties: Who Should Consider Investing?

NNN properties can be a great fit for certain landlords. However, investors need to be comfortable putting significant capital upfront and potentially facing tenant vacancies in a single-tenant setup. 

Triple net lease properties are great for:

1. Investors looking for long-term, stable income and returns.

2. Landlords looking for hands-off property management.

3. Retirees wanting passive income with minimal effort.

4. 1031 exchange participants looking for defer taxes. 

How to Get a NNN Property: A Step-By-Step Guide 

If you're looking to invest in a triple net lease property, the process includes several essential steps—whether you're an investor expanding your commercial real estate portfolio or just starting out. 

Here's how to get started:

Step 1: Work With a Commercial Real Estate Broker

Begin by finding a broker who specializes in NNN properties. You can start your search by visiting reliable online resources and listing sites like LoopNet, NNNex, Crexi, and Calkain to find a trusted broker. These professionals have access to listings not always available to the general public and can guide you through tenant history, market trends, and lease structures. 

Step 2: Define Your Investment Criteria

One vital step for obtaining a triple net lease property is to define your investment criteria. Defining this essential information will help narrow your search and help your broker identify the best deals. 

Important investment criteria often include: 

• Type of desired property (business, medical, retail, office) 

• Tenant credit rating (local businesses vs. national brands)

• Lease terms and minimum cap rate 

• Financial and budgeting strategy 

Step 3: Secure Financing

Triple net lease properties often require significant upfront funds. Get pre-approved with a lender who understands commercial real estate. Some investors also use 1031 exchanges to roll over gains obtained from previous properties. 

Step 4: Review the Lease Agreement in Detail 

An NNN should clearly state the term length, tenant responsibilities, renewal options, any potential landlord obligations, and rent escalations. Be sure to have a real estate attorney review the lease before you sign and commit.

Step 5: Do Your Research 

You should thoroughly assess the property before closing.

You can do this by: 

1. Inspecting the property’s physical condition

2. Verifying tenant financials and payment history 

3. Evaluating local zoning laws and market conditions

4. Reviewing taxes, the title, and any environmental risks

Step 6: Close the Deal and Monitor Performance 

Once you’ve done your research, you can close on the property. Maintain ongoing check-ins on lease milestones, tenant compliance, and property performance after that. However, in most cases, you can enjoy minimal daily management. 

Evaluating a Triple Net Lease Property: A Quick How-To 

This year, cap rates for NNN property vary from 4% to 7% depending on property location and tenant quality. 

Before making a property purchase, make sure to evaluate: 

• Tenant strength: Is the potential tenant financially secure? Publicly traded?

• Lease terms: How long is the lease? Are there any options for renewal?

• Location: Is the property in a location that's growing or declining?

• Cap rate: What is the property’s expected return based on net income?

Conclusion 

Triple net lease (NNN) investments can be an ideal way to generate consistent, passive income with fewer management burdens. But as with any investment, success relies on research—understanding the lease, researching the tenant, and evaluating the market.

If you're ready to explore NNN property opportunities, consider working with a trusted and experienced broker who specializes in commercial real estate. And if you're using a 1031 exchange, make sure your timeline aligns with IRS regulations!