The commercial real estate industry can be a complex and intimidating market to investors with limited knowledge of the industry. Potential investors may opt out of investments that they believe are out of their realm of expertise. “NNN” or triple net leased property is one of the many ways to invest in commercial real estate and can sound confusing to an investor. Historically these investments have been in high demand and continue to be quite active in today’s market. Although sounding complex, many investors with less experience in real estate have seen great returns when investing in triple net leased property.
A true NNN Lease is where a single tenant leases a building typically 10-20 years or more, and is responsible for all cost associated with maintaining the building, including: maintenance, repairs, taxes, and insurance. An investor of a triple net lease pays a lump sum up front for the cash flows or rent the lease produces. The investor is taking on the risk that the tenant may default on the lease and is compensated accordingly by means of a specific rate of return, known as a cap rate. The more credit worthy a tenant is the lower the cap rate and the opposite holds true for a lower credit tenant. NNN investment property can be appropriate for experienced and beginning investors alike. The main advantage to purchasing a NNN investment property is the fact that they are typically a low maintenance investment for the investor. This feature also opens geographical boundaries and allows the investor to choose from a nationwide pool of investments. These features along with capital gains and inflation protection make triple net leases very attractive.