subject: What You Need To Know About Net Lease [print this page] Many real estate agents have discovered that real estate investors often have a huge misunderstanding or lack of knowledge about the net lease when it comes to actually investing in commercial real estate. They are commercial real estate investments in which each tenant has larger responsibility for the actual building.
In fewer words, the landlord has fewer management responsibilities. There are three main types of these properties.
They are modified net, triple net or NNN, and double net or NN. There are many benefits and drawbacks to each choice for both the investors and the landlord.
A modified net lease is considered to be the standard form. Under this definition the tenant is responsible for paying the utilities, necessary maintenance, for repair work, and insurance.
The landlord retains the responsibility of paying for property taxes and any other fees that may arise. The main benefit of a modified one is that the tenant has higher interest in maintaining the property because they are responsible for paying for repairs if something breaks.
As a result, the tenant will generally take better care of the property. In a case where the property does not have a modified policy the tenant may be more prone to letting things fall apart and being more abusive to appliances and furnishings.
The policy of a modified lease practically ensures the landlord that the tenant will take care of the property, building, appliances and furnishings. The biggest drawback to this kind of lease is that the landlord is still responsible for some of the expenses such as property tax.
The Triple Net lease or NNN is generally used for industry oriented rentals. There are usually boundaries on capital expenses for these kinds of leases.
Under a NNN policy, the tenant is responsible for all paying property expenses including property taxes, property insurance, and the general maintenance. The landlord is basically left with no responsibility related to this property.
There are very few draw backs to a NNN. The biggest drawback is the impact it can have on the purchase price of the property.
Out of state investors usually find NNN investments ideal for their needs. For example, they do not have to worry about managing their property correctly.
In addition, the landlord does not have to worry about anything related to the property except for paying the debt they may have obtained when purchasing the property. Unless their tenant goes out of business, they have a sure income.
The double net lease or NN lease is considered to be very similar in nature to NNN leases. The main variance is that the landlord is in charge of paying for structural damage.
For example, if the roof leaks or the walls begin to warp because of too much weight. The benefits are the same in that the landlord has much less to worry about than in a typical modified net lease.
In addition, the drawbacks are also the same. The only difference is that the tenants of NN lease plans are usually big name brands that do not want to pay for roofing expenses or structural damage.
Again, the NN lease is an ideal option for non-local investors who do not want to have to oversee every detail of their investment. The landlord will also have a definite amount of income from rent that can help him or her pay off their debt in obtaining the property.
The only case in which he or she would not receive rent would be if the store went out of business. There should be some warning if this is the case.
NNN leases, NN leases, and modified net leases are all ideal options in specific locations and circumstances. A fundamental knowledge of how these leases work can greatly help an investor make wise decisions.
