I have recently been looking for a quality NNN lease purchase for a very qualified real estate owner and investor. We have narrowed down the geography. He likes properties that he can look at during the lease. He is willing to pay for the right opportunity with a decent CAP Rate (return on investment).
Basically a triple net lease is usually a national retailer, franchisee or restaurant that has a long term lease with options to renew who leases the property as opposed to buying it to avoid a significant outlay of capital. Tipple net leases mean the person or company leasing the property pays the real estate taxes, Common area maintenance and insurance as well as any other expenses.
The landlord has “no responsibilities” other than collecting the rent. The landlord pays for the property in order to obtain this return. CAP rates on commercial properties do not fluctuate wildly. They tend to be in the 5-7.5% range depending upon the credit worthiness of the tenant. It is a game of risk vs reward. The higher the risk the greater reward for the investor.
What I have found is that you must do a significant amount of due diligence. Many times properties are promoted as NNN but when you read the lease the landlord does have responsibilities of things like the roof, structure and parking lot maintenance.
This is an area of real estate which takes a lot of thought such as what the property will be used for if something happens to the current tenant or what it’s use will be after the lease is over. It is one thing to get a return while the property is being leased it is another to know or have a feeling for what the property will be worth at the end of the lease and the rent stops.
This is by no means to be a complete primer on NNN leases. I simply want to convey that like all real estate transactions even investors need professional advice and counsel to minimize mistakes.