Triple Net Lease NNN Investments have become a very popular real estate investment, mainly because of its Singular Attributes that are unique and not offered by other types of investment. Nowadays investors have many different options where to invest their money, some of them with more risk and return than others. However, NNN investments distinguish themselves from the others by providing investors with a perfect mix of capital preservation, excellent capitalization, passive income, investment stability and outstanding tax benefits. But first, let’s start by reviewing the definition:
What is a Triple Net Lease NNN Investment?
“A lease agreement that designates the lessee or the tenant, as being solely responsible for all of the costs relating to the asset being leased in addition to the rent.” (Investopedia). In simple terms, in a Triple Net Lease the tenant agrees to pay, in addition to the base rent, the Property Taxes, Property Insurance and Maintenance Costs. Moreover, most Triple Net Lease NNN agreements nowadays are structured as Absolute NNN, in which the tenant is also responsible for the roof and structure. It is undoubtedly an outstanding investment vehicle to allocate your money in. There are several Singular Attributes of NNN Lease Investments that distinguish them from other type of investments.
The Singular Attributes
1. Capital Preservation
Certainly, the most important goal of any investor is the preservation and growth of hard-earned capital. Triple Net Lease investments are not subject to the typical market fluctuations. Your investment is backed by the tenant stability, which are mostly national corporations with investment grade credit ratings and very solid and stable franchisee operators with a proven track record of success. The value of the asset is in direct correlation with the term of the lease. In most instances the tenant decides to exercise the lease extension options or even renews the lease before maturity resulting in an increase of asset value.
2. Capitalization – Asset Value Appreciation
Capitalization or appreciation of asset value is another singular attribute of a NNN Lease Investment. Other fixed income investment options, like corporate and government bonds, fall short in providing the investor the asset capitalization benefit. Moreover, most of these bonds are exposed to the market and interest rates fluctuations, in which in some cases the face value of your investment depreciates in value, instead of providing positive appreciation. On the other side, Triple Net Lease Investment offer strong capitalization opportunity for the investor. Some investors hold the investment for five years or less, collect the cash flows for the first years of the lease term and then flip the investment to other investors taking advantage of an early capitalization.
3. Passive Income
A fixed or passive income is money that you receive for doing nothing, in other words you don’t have to be involved in the asset management to generate the cash flow. Some investors are lured by the promise of double digit returns in other type of Real Estate Investments, to see themselves at the end dealing with the hassles of property management and all the inconveniences that this carries over. One of the major beauties of a Triple Net Lease Investment is that the only thing that you have to do every month is to pick up the check in the mail or look at the direct deposit in your account.
4. Investment Stability
A Triple Net Lease is a stable a investment, in other words it will not be subject to the typical market fluctuations that other type of investments are exposed. When you decide to invest your money in bonds, stocks or mutual funds your investment can be subject to drastic fluctuations that can even make your trip to the mail every month a nightmare before reviewing your statement. On the contrary, a Triple Net NNN Investment is a stable investment that will not be subject to market fluctuations. If you analyzed the risk carefully before investing, which means the location, the credit worthiness of the tenant, and the brand’s competitive advantage in the market (among other factors), you can rest assure that you will not have surprises at the end of the month.
5. Tax Benefits – 1031 Exchange
The ice at the top of the cake of Triple Net Lease Investments is the Singular Tax Attribute that is unique to any type of investment. There are three (3) types of tax benefits for NNN Investments:
- Federal Tax Deferment – Section 1031 of the Internal Revenue Code allows an investor to sell a qualified real estate investment and exchange it for another similar qualified investment deferring the capital gain on the first property.
- Depreciation Recapture Tax Deferment – If you sell a real estate investment without using section 1031 the IRS will impose taxes over the amount of money you depreciated. However, if you buy another qualified investment, you can continue deferring the depreciation allowance by carrying it over the new investment property.
- State Taxes Capital Gain – If you reside in a state that has capital gain taxes, and buy a another qualified investment and use the benefit of the 1031 Section, in most cases you might be able to defer the state capital gain as well. It is very important that you check with your CPA and Tax Attorney to familiarize yourself with the benefits and limitations of deferring capital gains on an investment asset.
These are just five (5) of the many Singular Attributes that Triple Net Lease NNN investments have to offer that make them unique and one of the safest investments vehicle in the market. As you might be thinking, there is no risk free investment and there are certainly some risks involved as well that need to be considered. In our next article we are going to summarize some of them. In conclusion, the Singular Attributes of Triple Net Lease Investment are the main reasons why this type of investment have become extremely popular among investors.
Are You interested in investing in Triple Net Lease NNN Investments?
At CASABLANCA Commercial Real Estate, we specialize in Triple Net Lease NNN Investments and we can work with you finding and negotiating the best deal according to your investment goals and risk tolerance. Our financial background and market connections are what set us apart. We have more than 15 years of experience as Commercial Real Estate bankers which allow us to understand the financial aspect of an investment property. Our Buyer’s brokerage services are Free.
Contact us here or give us a call at 407.205.7570, let us be your trusted Triple Net NNN Lease Advisor.