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Triple Net Lease Investment Property: An Introduction

Triple Net Lease Investment Property: An Introduction

In today’s topsy-turvy economy, wise investors are seeking new and better ways to protect their investment dollars and grow their personal wealth. The very nature of the market cycle has real estate at the forefront of many investors’ minds. Although most types of real estate are an attractive investment today, commercial properties – especially those with triple net leases in place – provide a highly superior investment vehicle. Let’s talk about what triple net lease investment properties are all about, and how they can help you grow your investment portfolio and successful financial future.

What is a Triple Net Lease Investment Property?

Triple net lease properties (you may see them referred to as “NNN” properties or just “triple nets”) are, in essence, a type of lease arrangement between the property owner and the tenant, where the tenant pays a periodic lease payment (typically monthly, just like rent) but also pays all property taxes, insurance, and all repairs and maintenance required to keep the property in good condition. There are many variations, details, and nuances to this arrangement, but this is the basic structure that all triple net lease investment properties use. The types of tenants that provide the most ideal arrangement are established “national tenants” that provide a well known product or service to the marketplace, and those that have the capacity to endure through unfavorable market conditions.

How does the process work?

In a nutshell, the investor locates a property that will appeal to the type of tenant they have identified as being preferable. The investor purchases the property then enters into a lease agreement with the tenant for some term, typically many years. Alternately, the investor may find a property that already has a tenant in place and purchases that, or the investor may develop and build a property to a tenant’s specification, in an area the tenant indicates they wish to expand.

What are the advantages to Triple Net Lease Investments?

All investors struggle with finding ways to anticipate and plan for financial market fluctuations. As the economy cycles through periods of ups and downs, specific industries and investment types also experience good and bad times. The smart investor knows that the best place to put your money is in investment vehicles that have the best potential to endure through the down times. Triple net properties provide one of the strongest and most stable ways to defy those fluctuations. The specific benefits include high potential for stability, flexibility, and excellent return on investment, as long as the investment and lease arrangements are well founded.

What are the risks of investing in Triple Net Lease properties?

With any investment, inherent risks exist and the investor is always advised to seek the advice of real estate professionals, tax experts, and financial consultants. That said, the risks to triple net lease investing are minimized versus many other types of investments, even other kinds real estate investments. Risks include having the tenant become insolvent or otherwise break the lease. If the investor determines the credit worthiness of the tenant prior to engaging in a lease, this will help to circumvent this problem. Developing an airtight lease agreement will also help mitigate risk, as well as choosing a property profile that may be desirable to another tenant, should the original tenant fail. Once the investor becomes well-versed in the details of triple net lease investing, and has the knowledge to weigh the benefits versus the risks, the obvious investment benefits will become clear.

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