Rumor has it that there has never been a more opportune moment to temper with Triple net.
Those in favor of buying are setting forward the reasons like the reliability of income and long-term stability as the most notable ones.
But every “pro” needs its “cons”. And as we have already learned, the “cons” of the NNN leases are unpredictability and potentially high turnover – especially in Covid times.
So, which will it be? Make a trade or purchase? In this article, I’ll walk you through all the reasons why it’s a good time to act on both ideas (depending on your needs).
The Much Sought-After Lease – The Triple Net Lease
The third derivative of a Net Lease is, as the name implies, Triple Net Lease, famous for its requirement to pay three extra things, on top of the rent. These extra expenses for tenants (usually a single one) are:
- Maintenance, with options to renew
Demand for triple net lease assets has been rising consistently over the last two decades – as we have discussed in our previous blog (the one you can have a look HERE), and the properties are usually leased to long-term, Class A tenants.
More about the classification of office buildings you can also find in our blog: Office building classification guide – Building classes A, B & C.
It will help you obtain a better understanding of the kind of tenants NNN lessors are after.
NNN investors flock to these properties due to the perception that they are low-risk, low maintenance, require little labor from the landlord – but provide consistent cash flow for an indefinite time span.
Wish To Buy NNN Property – A Traditionally Stable Niche
If you have been considering investing in a triple net lease property, it is important to figure into the mix the implication of a tenant vacating the property.
Here are a few things to think about to ensure you are buying only the highest quality properties with the best downside risk.
- Pay attention to location. Location is the key. Choose areas with big growth possibilities, or at least those that show potential to grow. Well-connected traffic routes are also important.
- Tenant credit status. Make sure you protect yourself from tenants’ financial liabilities. A long-term tenant does not mean timely rent.
- Choose your “niche”. Why? Well, NNN assets are usually buildings built to accommodate tenants’ needs. If you invest in high-tech equipment, and the tenant leaves, it can be hard and costly to “redecorate”.
Triple Net and Covid – The Wish To Purchase, Not Lease
People are betting on triple-net-lease assets in the COVID-19 environment. Why?
Well, the pandemic has inflicted some really hard, and economically unstable times in front of many real estate investors.
And the triple net assets are a somewhat secure investment, seemingly ready to withstand black Covid times, with tax and liquidity advantages, as well as a nice portfolio addition.
The desire to own single-tenant triple-net-leased assets is born.
If You Choose To Sell – 1031 Exchange Option
It is not uncommon for large corporations to have a glitch and be late paying property taxes. This could affect the NNN building if not caught in an appropriate time frame.
That is why some investors choose to replace their NNN asset or cash allocation in one net lease.
If you were to sell now, use the 1031 exchange to trade up to investments with longer leases, new construction, or in an up-and-coming community, you could benefit from a seller’s market and 100% of the 1031 capital gains tax deferral benefit.
Purchase/Sell Your NNN Property With IPG
If you live in California, you are in luck. The NNN market has some of the best properties to invest in, and we’re here too.
We are specialists in 1031 property exchanges and NNN leasing tricks. We even shared some of our knowledge about that in two blogs, have a look.
Now, onto the California NNN market again. They are usually available for purchase via individual investors or investment trusts. And they usually use the 1031 exchange to get more variety and progression in their portfolio.
With prime NNN properties being sold off-market and at a record pace, we recommend partnering with IPG’s advisor to find the right property for your goals.
Our expert team will ensure you are properly represented and walk you through the process, from the property search and lease audits, to closing deals.