Triple Net NNN Lease Investments

Triple Net NNN Lease Investments have become a very popular investment vehicle mainly because of its singular attributes that distinguish them among other investment options. In a recent blog article, we wrote about that perfect mix of benefits such as: Capital Preservation, Passive Income, Investment Stability, Capitalization and excellent Tax benefits that make this investment unique in the real estate market.

Another singular benefit is the minimum and sometimes no investor involvement in the asset management. Most NNN Lease Investment are structured as Absolute NNN, in which the tenant is responsible for: Property Taxes, Insurance, Maintenance Costs and also the roof and structure. The different types of triple net leases distinguish the responsibilities and obligations of both the tenant and the landlord in a different way. Let’s make a quick review of the most popular types of Triple Net NNN investment options.

The most popular NNN Investment options

  • Single Tenant Triple Net NNN Lease – Most of the times, a Single Tenant Triple Net Lease Investment opportunity involves buying properties that are leased to investment grade credit  tenants and well-known retail brands (most of the time public companies). Nationally recognized companies such as: McDonalds (A/Stable),  CVS (BBB+/Stable), Walgreens (BBB/Stable), Home Depot (A/Stable), Wal-Mart (AA/Stable), among others, sell their real estate interest and leased back to investors.

These companies are not necessarily in the real estate business, instead of having money sitting down in their real estate, they opt to sell it to investors and re-invest the money back in their business and expansion opportunities. Single Tenant Triple Net Lease Investments are a great alternative for Investors that are looking for a more stable investment vehicle and at the same time less involvement in the asset management.

  • Multi-Tenant Triple Net NNN – In a Multi-Tenant Triple Net Lease, each tenant will be responsible for the Common Area Maintenance (CAM) charges, which are billed and paid proportionally by each tenant according to their pro rata (rentable square feet) share of the property total charges. However, this type of investment requires more investor involvement in the day to day management operations of the property.

The investor has the option to hire a professional property management company or doing the management internally. In either of the options, significant investor involvement and supervision will be required to make sure the property is operating as its peak financially and the expected returns can be achieved. Multi-Tenant properties are most commonly seen in the Retail industry in shopping centers and strip malls, in which national and local tenants operate.

  • Zero Cash Flow Investments – This is a highly leverage investment in which the loan’s debt service matches the property’s cash flow or net income. Although that means that the owner will not receive income until the loan finally get paid off, they have outstanding benefits. You can purchase the property with a reduced down payment such as 10%. Once the loan is fully amortized, you have an investment that will provide a steady and secure stream of cash flow and an outstanding opportunity for capitalization.  Zero cash flow investments are structured in a similar way like a bond that is backed by investment grade credit tenants.

Types of Triple Net NNN Leases

  • Single Net Lease – In a single net lease, in addition to the base rent, the tenant is also responsible for the payment of property taxes. All other property expenses such as insurance, maintenance costs, among others, are still the responsibility of the Landlord.
  • Double Net NN Lease – A double net (NN) lease makes the tenant responsible for the payment of property taxes and insurance. The landlord retains the responsibility of maintaining and repairing (if applicable) both the structure and the roof, in addition to the common maintenance areas.
  • Triple Net NNN Lease – In simple terms, in a Triple Net Lease the tenant is responsible for paying the three (3) N as follows: N– Property Taxes, N– Insurance, N– Maintenance Costs. In addition to the base rent, the tenant is also responsible for any repairs and maintenance of the property and common areas.
  • Absolute Triple Net NNN Lease – Structured in a bond like way, in the absolute triple net, the tenant assumes all obligations concerning the property. In addition to the NNN items discussed above, the tenant carries also the responsibility of the roof, structure and the obligation to rebuild the property after a fortuitous loss, regardless if the loss is covered or not by insurance. This type of lease is very popular among investment grade tenants who usually sell and leaseback the property. For the investor, the Absolute Triple Net NNN Lease offers the maximum benefits with the minimum or almost no involvement in the asset management.
  • Ground Lease – A ground lease is a variation of a NNN Lease, in which the investor or landlord leases the land to the tenant who is allowed to build on the land. The tenant has leasehold interest in the building and improvements, but in most ground leases, the building and permanent fixtures become landlord property at the expiration of the lease. Ground Leases have similar characteristics of Absolute NNN Leases in terms of the tenant responsibility for paying property taxes, insurance, maintenance, roof and structure.

Federal and State Tax Benefits

As we explained in our recent blog article: Triple Net NNN Lease Investments: Five (5) Singular Attributes, the tax deferment benefits complement this type of investment and make it unique among other options. Let’s review the three (3) tax benefits that distinguish NNN investments.

  1. 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.
  2. 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.
  3. 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.

Are You Looking to Invest in Triple Net NNN Lease Investments?

  • A strong financial background is what sets us apart. We are former Commercial Real Estate Bankers with more than 15 years of experience in Commercial Real Estate Investment Lending.
  • Investment Loan Structuring – We understand the financial aspects of an Investment Property, which enable us to identify the financial risks and opportunities involved in each investment in order that our clients can make assertive investment decisions.
  • Commercial Real Estate Financing – We leverage in our extensive Financial and Corporate Background that allow us to assist our clients to obtain Commercial Financing. As former Bankers, we are able to speak the banker’s language, we negotiate with them on your behalf, we know what they are looking for, we know how to get your loan application approved.
  • Strong Market Connections – We have strong market connections that includes local and national Bankers, Top Brokers, Private Equity Funds, National Tenants, NNN Investors and past clients, that allow us to find properties for our customers that are not even on the market yet.
  • College Education – Beyond experience, our team is college educated holding several Financial College Degrees from prestigious Universities in the United States.

Contact Us here or call us directly at 407.205.7570,  let us be your Triple Net NNN Lease investment advisor.