Triple-Net (NNN Sales)
What exactly does the term "Triple Net Lease" mean? Also known as "NNN", this is a lease in which the lessee agrees to pay, in addition to rent, all costs, including operating expenses, property taxes and insurance.
A lease is usually "triple net" if it requires the tenant to pay the following:
1. All operating and maintenance costs during the term of the lease
2. All state and local property taxes
3. Full liability and property damage insurance
Are net lease properties safe investments?
Overall, real estate investments are less risky than many other investment opportunities. Net lease investments are often considered to be one of the safer real estate investments, since typically there is little to no tenant turnover, the leases are usually longer term, and depending on the credit worthiness of the tenant, the risk is often significantly mitigated.
Leases are generally how long?
Normally, Net Lease Properties contain lease terms between ten and twenty years. Shorter lease terms may be problematic and longer lease terms are generally much more difficult to locate.
What kinds of financial returns can I expect?
An investor can expect to purchase net leased properties at a Capitalization Rate (Cap Rate) basis at between 5.50% to 9.00%, Cash on Cash (COC) returns of 0 - 8% and After tax, Internal Rates of Return (IRR) of 7 – 14%. Of course, many variables impact these potential returns and no two opportunities are exactly the same.
We recommend you analyze the following factors before making any Net Lease decision:
1. Quality of the Lease – how “net” is the lease?
2. Quality of the Tenant – evaluate the tenant’s credit situation.
3. Quality of the Real Estate – current and long-term residual value of the site.
All of these factors have a substantial bearing on the perceived value of a Net Lease investment. A rule of thumb to remember is the lack of perceived risk escalates the asking price and minimizes financial returns, while the more perceived risk, the lesser acquisition cost and greater potential returns. NNN Lease properties include Walgreen’s, Best Buy, Starbucks, Goodyear, Gander Mountain, Sherwin Williams, Applebee’s, Wendy’s and many more American icons.
There are over 300 NNN Lease properties presently available through DENALI, and we always recommend all investors perform their due diligence prior to investing in any type of investment opportunity.
