The Nuts and Bolts of Triple Net Lease Properties

For investors new to the real estate market, the idea of investing in a triple-net lease property may seem like an appealing – yet also daunting – proposition. While such investments can be quite beneficial to investors, they can also bring with them complications. Understanding the basics and conducting appropriate due diligence are both required. Likewise, careful negotiation and consideration of your investment objectives should be considered before committing to this sort of investment property.

The Basics

Triple-net leases are used in a variety of contexts, including rental of office complexes, industrial buildings and retail space. The terms of a triple-net lease requires the tenant to assume responsibility for taxes, insurance and maintenance and pay the landlord monthly rent in exchange for a long-term lease.

Benefits

Triple-net lease properties offer investors the usual benefits of a real estate investment, including tax breaks, capital appreciation and a steady income flow. However, the biggest benefit for many investors is the hands-off approach to management of the property itself.

Triple-net leases also usually have a low tenant turnover rate, which is also appealing to a landlord/investor. Likewise, because triple-net lease tenants tend to be prominent entities, the bank is often willing to offer an investor more favorable loan terms due to the stability inherent in the lease.

Risks

Hearing all this, a triple-net lease sounds almost too good to be true, right? While they can be quite beneficial to investors, they don’t come without their own unique risks. One of the biggest is inflation. If rent is set for the long-term but doesn’t keep pace with market rates, an investor could find themselves with a property that is difficult to sell.

Interest rates can also wreak havoc on a triple-net lease investment. When rates rise, the value of your investment property may decline. This can be especially tricky if you are trying to use a 1031 exchange for the sale and replacement of the triple-net lease property.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.