NNN Leases: The Beauty Of Commercial Real EstateBy Emily Cressey
Ok, may be my headline was a bit of hyperbole, but NNN leases will at least open your eyes to an entire new way to do business in commercial real estate. True and complete oneness with the universe might a take a little more time and work. So, in the mean time NNN leases and commercial real estate investment can make you some money and cover your earthly needs.
We’re all aware of standard leases. The run of the mill leasing agreement stipulates the amount of rent you will pay, the duration of the agreement, penalties and other fees you will be responsible for and so on. Many novice investors or those interested in investing shy away from commercial real estate because they assume there will be headaches with tenants, fees, costs and other troubles. NNN leases answer a lot of these concerns.
NNN is short for net-net-net. Net leases come in a variety of shapes and forms. The basic idea behind all of them is that they assign costs that are normally the investor’s responsibility and distribute them amongst the tenants. In a triple net lease the tenant is responsible for net real estate taxes, net insurance costs and net repair and maintenance fees; hence the name net-net-net. There are also single and double net leases as well as different kinds of triple net ones. For example, an absolute triple net lease holds the tenant responsible for replacing the building if a catastrophic incident should occur or for rents if the building is condemned.
The whole point of net leases is to limit your costs and disperse them amongst your tenants. These kinds of leases work best in multi-unit industrial or retail centers. The costs can be divided amongst the various tenants and prorated based on the size of their unit. The great thing about NNN leases and commercial real estate in general is that you spread the risk amongst many tenants. This way you are not completely out of luck if your sole tenant goes renegade on you.
Reality TV has done its part in convincing the pool of potential investors that the only way to go is flipping and anything else is a sucker’s bet. That’s just not true. In these lean days when double-digit property appreciation is gone, the best way to make money is just like how the turtle ran the race; slow and steady. By getting together a small down payment an investor can purchase some commercial real estate, put in some minor cosmetic improvements and implement a net lease to cover the costs.
With this kind of system set up you are free to collect the profits from the monthly positive cash flows and focus your energy on finding new deals. Who knows, you may also have time to sit under a Bo tree for forty days and work on that pesky oneness problem.