subject: The Joys of the Commercial Real Estate NNN Lease [print this page] The Joys of the Commercial Real Estate NNN Lease
In the world of commercial real estate NNN leases offer decreased costs and increased property valuation for the astute investor. If you're looking to get involved in commercial investment property or improve the returns you're getting from your current commercial property then you need to check out the NNN lease.
NNN, or triple net leases, are commonly found in commercial real estate. The commercial NNN lease is just one kind of net lease. A net lease dictates that the tenant will cover some of the costs of property ownership in addition to paying rent. In a single net lease the tenant pays the real estate taxes. In a double net lease the tenant pays taxes and property insurance. In a triple net, or NNN, lease the tenant covers property taxes, insurance and maintenance costs.
The real estate investor gets to lower their costs with a commercial real estate NNN lease. Since commercial real estate is valued by the net income it produces, decreasing costs increases net income and thus how much the property is worth. To maximize the increase in property value minor cosmetic improvements can be done drawing in higher rents.
Commercial real estate NNN leases are most commonly used in multi-tenant retail and industrial complexes. They wouldn't make as much since in a residential situation, but are common practice in other forms of commercial real estate. Tenants may be hesitant about signing up for leases where they are responsible for more than rent, but in return they get lower rents. If the building is new or recently refurbished then they will be more likely to sign up for a triple net lease.
So now that you know about the wonders of the triple net lease, what's your battle plan?
First, do your homework. You need to find out the going rates of rents and valuations in your market. Once you have a handle on what people are willing to pay for the privilege of renting your commercial real estate then you can start to figure out what you can afford. Second, you'll need to gather up a down payment on the property you are looking at. The bigger the down payment the lower the mortgage, but a nice medium must be found. If you put too much down you might be missing out on other opportunities that money could bring in.
Next, do some cosmetic improvements to the building. Assuming this isn't a brand spanking new complex there will be some work you can do to improve it. The better it looks the more you'll be able to bring in for rents. Also, with a newly updated building tenants will be more likely to sign up for a triple net lease because they won't feel as though they are going to get hit with high maintenance and repair costs.
Finally, get yourself some tenants, sign them up on a triple net lease and sit back and watch the money roll in.
