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.

Net Income....what net income?

Defining Income

The best way to maximize your investments is to understand what constitutes true income. This means that you need to examine both the gross income (all incoming dollars before expenses) and net income (the money you have left after paying expenses). Knowing what you actually earn can help you determine what expenses could be lessened to help increase your net income.

Understanding The Balance Sheet—Tips from the IRS
When you prepare your tax filings, you need to include all gross income from rent. The IRS defines rental income as any payment you receive for use or occupation of the property. The IRS will allow you to deduct expenses in the same year you pay them.

In preparing your filings, you need to report income for the year you actually or constructively receive it. This includes advance rents (any amount received before the period it is due), security deposits (only if you plan to keep the money because the tenant fails to properly hold up the lease), and expenses paid by the tenant (if the tenant pays any expenses).

What Are My Expenses?
Rental expenses include a wide variety of payments you make as owner to maintain the property. These can include repairs, vacancies, debt service, insurance, accounting, janitorial services or management.

The common definitions of these expenses are:
1. Repairs refer to any part of the property that you have physically changed either by necessity or cosmetic choice. They can include fixing a broken water heater, repairing broken windows or changing the locks for enhanced security.
2. Vacancies are the expenses incurred by the owner from not having an income from a unit because it is unoccupied by a paying tenant. For example, if an owner has a four-unit apartment building with each unit renting for $500 per month, the owner would receive $2,000 a month if the building were fully occupied. If only three units are occupied, then the owner receives $1,500 per month leaving a $500 per month expense.
3. Debt service refers to the series of interest and principal payments required on an obligation over a set period of time.
4. Insurance refers to the promise made by an insurer of compensation for specific potential future losses in exchange for payment. Insurance is designed to protect the financial well being of the insured.
5. Accounting refers to any payments made to a person or firm to prepare financial statements, create and maintain billing systems or otherwise perform general bookkeeping duties.
6. Management and Janitorial services refer to any payments made to staff to manage or clean the units.

Definitions and IRS tips are provided by investorwords.com and irs.gov.

What am I left with?
The remainder of the income after paying your expenses is your net income. Many real estate experts recommend at least a 75/25 net to gross income ratio. If you are receiving less net income, examine your expenses and programs. Now may be a good time to look at technologies to help cut costs and streamline your income process.