Advantages Of Owning NNN Properties?
Ok, I asked for pitfalls in buying triple net lease properties a few days ago, and got some good answers (but still have some unanswered questions over there). Looks like buying multiple units in a property is the way to go, because it will minimize the impact of vacancies, and require a local property manager to take care of cleaning, repairs and pests, etc. So the income needs to cover cost of management company. This is good because I need to buy out of California to get a higher Cap rate....
So now I'm beginning to wonder if I'm aware of all the advantages. Might someone be able to list the top 5 advantages to owning a NNN property?
Thanks ahead of time for your input.
Marlene
The advantages are quite straightforward:
1) If you have a stong tenant, you will have a nearly paid off building in about 30 years which is nearly depreciated.
2) you will have a place to 'park' your money without having to worry about daily fluctuations of capital markets.
hope these 2 help a little. Personally I'd MUCH rather invest in a credit rated single tenant NNN, than buying multi-unit properties. Plus with the high number of individuals getting into this business recently, you are sure to pick up some good properties from people who really didn;t have the ablity to endure the long term nature of these investments.
Biggest advantage is that with a true NNN you know exactly what your net revenue stream is going to be - so long as the tenant abides fully by the lease term. If your expenses increase, the lease obligates the NNN tenant to increase his expense reimbursement accordingly. Now, if he goes bankrupt or simply starts to not pay ...
Frankly a single tenant property, NNN or otherwise, scares me for the reason you have one and only one tenant - and if he goes belly up so do you. And some very "A" type tenants (Enron ring a bell?) have done just that. If the building is true general-purpose you might be OK, but things like big-boxes and fast-food restaurants lose a lot of value when the tenant departs. My humble opinion only, of course!
Sorry - I goofed! I guess I need to figure out the difference between "submit reply" and "new topic."
Thank you for taking the time to answer my question.
Now that you point it out, it looks like NNN is a good way to go, and finding a general purpose building is the best route if I go with a single tenant. An agent told me that with a strip mall, for example, which is multi-tenant, I would need to get someone to blow off the parking lots (or shovel if it is in a snow zone), do pest control, maintain lights on building exterior and in parking lot, and that sort of thing. With a single tenant, the tenant handles all maintenance and repairs. Do you agree?
Gratefully,
MarleneM
Hi:
Let me offer everyone a laugh or at least a smile. What is NNN ?
sayana
A NNN, or triple net lease, is where the leasee assumes all responsibility for the maintenance of the building, pays all taxes, etc. The terms is usually quite long, many are 20 years with multiple 5 year extensions available.
As for Marlene's question, yes, in a single tenant property, that tenant would normally be expected to keep the exterior in good shape. But don;t let just that stop you from looking at strip malls - you can hire that out if you're OK with the concept of multiple tenants - since your cap rate will be much better in a stip mall than a fast food restaraunt or stand alone drug store, the maintenance contract should'nt be a big deal for you. The lawn work/maintenance is normally charged to the commercial tenant as a separate line item to rent and taxes anyway.
Ok, so one advantage is that a strip mall would allow me a high enough cap rate to afford a property manager. Are there other advantages to getting a NNN strip mall vs. a multi-family building?
Thank you,
MarleneM
I understand the advantages of being the landlord/owner/investor on a NNN property, but why would tenant want a NNN building??? I could see where it would make sense if the lease is a very good deal, but if the tenant is going to pay taxes, insurance, maintainence, utilities etc.. why wouldn't thye just want to buy a building??? I'm by no means saying that NNN leases dont work or anything like that I'm just wondering why a tenant would go for it????
The tenants in these buildings tend to be business who would rather keep their credit available for purposes more closely related to their core business. Perhaps the easiest to understand is an warehouse operation. A company could have, say, half a million dollars tied up in the "equity" part of a two million dollar warehouse. By NNN leasing the warehouse that $500,000 is available to buy machines or advertising which would make a higher rate of return to the company than the 9% that the NNN landlord is willing to take. In essence it allows the tenant to do `100% financing in a commercial market where such things are hard to do.
There are other, more esoteric, tax advantages but this is the main business advantage.
From what I've been told, the tax advantages can be signifcant, too. For example, a NNN tenant can deduct 100% of the lease expenses and avoids any capital gains complications upon sale of the property.