A Comprehensive Guide to Triple Net Investing

Author Casaldra Andreassen Read bio
Tags: nnn lease
Date: January 2, 2024

Triple net lease properties, also known as NNN leases, are becoming a favorite among investors looking for strong returns in commercial real estate. This is especially true during tough economic times, like during the pandemic. NNN leases are getting more attention because they often bring in better profits than options like bonds.

The big draw of triple net leases is that they provide steady income from renters and don’t require much day-to-day management. This kind of investment is becoming more common in various areas of commercial real estate, not just in stores and shops.

To help you understand these investments better, we’ve put together a guide on Triple Net Leases. It includes the basics of what these leases are, their pros and cons, and important things to know about them.

Are Triple Net Properties Good Investments?

Are NNN properties a good investment choice? The answer often heard in commercial real estate is: it really depends.

NNN properties can be a smart investment for certain types of investors. If you’re someone who wants to be very active in real estate, grow your portfolio quickly, or make big changes to properties to increase their value, then NNN properties might not be the best fit for you. But adding one to your mix of investments every once in a while could be a good move.

On the other hand, if you’re looking to keep your wealth steady, want to use money from a 1031 exchange, or just want regular income from real estate without the hassle of being a landlord, then NNN lease investments could be exactly what you need.

Like any investment, choosing NNN properties depends on how much time and effort you want to put in and how comfortable you are with taking risks.

How to Invest In NNN Properties?

When investing in NNN properties, consider these streamlined steps, proven effective through our experience with clients nationwide:

  1. Identify Your Investment Return Goals
    Triple net investments offer varying returns depending on factors like tenant, location, lease term, landlord responsibilities, and building age. It’s vital to set a clear return target. For instance, if you’re aiming for a 5.5% cap rate, don’t settle for less. Conduct market research to understand current cap rates and align your expectations accordingly.
  2. Choose a Qualified Triple Net Lease Advisor
    Partnering with a knowledgeable triple net lease advisor is crucial. Look for a commercial real estate broker or brokerage specializing in NNN investments. They can assist in finding the right property, conducting due diligence, and guiding you towards a successful investment. Ensure they have specific experience in NNN investing, as nuances in commercial real estate can significantly impact your investment.
  3. Define Tenant and Lease Terms
    Not all NNN tenants or leases are the same. Some may offer attractive cap rates but have short remaining lease terms. Assess the tenant’s credit rating, considering factors like the number of locations and financial stability. Decide whether you prefer corporate guarantees or are open to franchisee-guaranteed leases, and set your criteria accordingly to focus your search.
  4. Secure a Flexible Lending Partner
    While some NNN investments are ideal for all-cash deals, exploring lending options early is advisable. Look for a lender with nationwide coverage to accommodate investments in various states. Your local bank or a mortgage broker could be viable options. Having preliminary debt terms helps with the underwriting process, allowing you to act swiftly when a suitable opportunity arises.

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How to Find the NNN Properties for Sale?

Finding triple net properties for sale is similar to looking for any commercial real estate. You can start by working with a commercial real estate broker or an investment advisor, or you can search through online property listings.

However, if you’re not using an experienced broker who specializes in triple net investments, your options for discovering and evaluating good deals may be limited. These properties are usually not something you can just find by driving around or sending letters to property owners. They are typically marketed to a specific group of buyers, like other brokers or investors who focus on triple net properties.

If you’re interested in finding triple net investments, IPG has experience working with investors across the country and can assist you with your next purchase.

How Do You Finance NNN Properties?

When it comes to getting a loan for NNN properties, you usually have two choices: a bank or credit union that’s backed by the federal government, or a private lender. Most of the time, the better loan deals, like lower interest rates and more favorable conditions, come from the federally insured banks or credit unions.

Risks of Buying Triple Net Lease Properties

The NNN investing as well as many other types of CRE investing has some limitations that both parties should understand before entering a long-term lease agreement.

  • Tenant Risk: The financial stability of the tenant is crucial in NNN investments. If the tenant fails or goes bankrupt, it could lead to loss of rental income and difficulty in finding a replacement tenant.
  • Property Marketability: Some NNN properties may be custom-built for specific tenants. If the tenant leaves, the unique features of the property might make it challenging to lease to a different tenant without significant modifications.
  • Location Risk: Like all real estate, NNN properties are subject to the risks associated with their location. Changes in the area, such as economic downturns or shifts in traffic patterns, can affect the property’s value and desirability.
  • Limited Appreciation Potential: NNN properties often offer steady cash flow but may have limited potential for value appreciation compared to other types of real estate investments.

Understanding and carefully evaluating these risks is essential for anyone considering an investment in Triple Net Lease properties.