Why do I love NNN (Triple Net) Investment Properties?
They are powerful, easy to understand, even easier to own, and a great addition to a portfolio – if you follow basic guidelines.
We have ridden through a horrible economic downturn in 2008. I had many clients who purchased NNN properties in 2003 to 2008 and not one of the corporate guaranteed properties had ANY problems – no downturn of rents, no closings, nor issues. It was steady through rough waters. I had one client who insisted on a mom-and-pop investment because the cap rate (rate of return) was higher, but that one went bust. See more on this below.
1) NNN Investments are powerful because the minimum lease terms are typically 15 to 20 years, sometimes 25 years, with additional options to renew that go out to 50 or even 75 years.
If you are annoyed at leases and tenants that turn over every few years, this is a “set it and forget it” kind of arrangement.
2) NNN leases mean that the tenant is responsible for everything (or most things) regarding the property: upkeep, repairs, taxes, insurance, and of course the rent they pay to you, the owner.
The lease lays it all out and should be closely studied during due diligence. Some leases are NN (double net) and the landlord may be responsible for roof and structure, for instance.
If you are annoyed by commercial or apartment properties in which you are continually making improvements, fixing issues, worried about damage, etc. NNN are a breath of fresh air.
3) Many of the tenants are INVESTMENT-GRADE, and I always recommend going with this kind of tenant. A Walgreens, Starbucks or McDonald’s has deep pockets and staff, they guarantee the lease, so in the worst case scenario (a property doesn’t perform or runs into trouble), the tenant still guarantees monthly rent payments. This is different than if the tenant is a mom and pop with a small net worth and whose guarantee may not be very strong in times of trouble.
Some of my clients have sold properties, conducted a 1031 tax-deferred exchange into a NNN property, and LOVED that they didn’t any longer have the telephone calls on weekends or evening, sob stories about late rent, etc.