In today’s uncertain economic times, traditional investments do not provide the stability or significant returns that investors seek. Perhaps that is why interest in network-leased and single-tenant real estate is skyrocketing. But to the casual investor, these properties, commonly called NNN or STNL in the industry, remain a mystery.
Defining NNN properties
Typically, the types of real estate that are considered triple net lease investments are free-standing buildings that are leased to domestic tenants for the long term, ranging from 10 to 25 years. These national tenants are often well-known names like Walgreens, FedEx, and McDonald’s.
Why NNN properties are attractive
There are several reasons why experienced investors gravitate towards NNN properties. First, these investments tend to deliver predictable, lower-risk income, strong capital preservation, and good tax deferral. Then there are the more intangible benefits, such as bragging rights that the investor owns a prestigious building that generates a steady and lucrative monthly rent.
How the NNN lease is structured
The details of the lease can be complex, but the basics require the tenant to not only pay monthly rent, but also cover property taxes, insurance, and maintenance costs. And, since there is only one tenant to oversee (and one with a solid reputation), the investor typically has little or no management responsibility for the real estate. This is especially beneficial for an investor who lives in a different city, state, or country.
Property Types NNN
For investors considering a move to NNN real estate investing, there are several different types of real estate that make up the general group. The market is segmented into three categories: retail and restaurants, industrial buildings, and medical offices.
Types of tenants
Just as real estate is classified, potential tenants are also classified. However, rather than looking at the type of tenant, the criticism concerns the creditworthiness of the tenant. Potential tenants may be “credit tenants” or “no credit tenants.”
Credit lessees tend to be national names who are assigned a credit rating by rating companies like Standard & Poor’s. The most desirable tenants are typically those that are classified as institutional grade investments, such as CVS.
Renters with no credit tend to be local or regional businesses that are not rated by major agencies. Of course, there are also some big national names who are considered bad credit renters simply because they have no debt. These unqualified tenants should not be ruled out.
Is NNN right for you?
There are many factors that an investor should consider before jumping into the world of NNN investing. Things like return on investment, stability, length of lease, potential rent increases, lease provisions, location, demographics, and other factors play a role in the decision-making process. .
While triple net leases can be a solid investment vehicle for building wealth, stable income, and flexibility, there are countless details that accompany these investments. Be sure to hire a qualified commercial real estate broker with specialized knowledge of these complex transactions to help you along the way.
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