When it comes to real estate investments, triple net leases are considered to be the simplest forms of investing. Some commercial real estate owners describe it like buying a bond. It’s straightforward to own as well as operate.
What is a triple net lease?
A triple net lease is one where the tenant agrees to pay all the expenses related to that property. This includes property taxes, building insurance, and maintenance, which is a major expense for a property. These property related costs are in addition to the usual utilities, fee to rent, etc.
What are the benefits of investing in a triple net lease?
Triple net lease investments are popular for generating a long-term cash flow that’s relatively steady. It’s perfect for those looking for stability while still having the option of flexibility. Triple net leases are straightforward to own and operate too. These usually include free standing buildings that are leased out to big names like Dollar Tree, Walgreens, Target, Ikea, etc.
Here are some of the benefits of triple net leases:
Rewards with relatively low risk
Triple net leases are a popular investment opportunity because of how easy they are to secure. They are similar to bonds in that they provide steady returns over a period of time. The tenants in such cases are big brands and franchises. The benefits of taking on such tenants is that they have a reputation to maintain and hence, they won’t pay up late or close soon, making them low-risk investments.
Profits can pile up through tax deferment
Capital gains on real estate investments can now be used to your advantage with the 1031 and 1033 Tax-Deferred Exchange Code. When you decide on selling it, you can avoid paying heavy taxes on these capital gains by reinvesting the money into another property. It’s a win-win solution for investors since they can buy larger properties, larger property results in more rental revenue.
Landlords/owners don’t have to take care of small issues
With other rental properties, landlords are held accountable for all maintenance and repairs required. With triple net leases, the lessee promises to pay for all the costs incurred on the property. The main burden of owning a property is therefore, borne by the tenant.
Analyzing triple net lease investments
Evaluate the real estate
Evaluating the property you’re going to be investing in is the first step of the process. The initial evaluation entails a property visit. The bond-like nature of this investment makes owners lazy about their property. It is therefore, essential to physically inspect the site itself to ensure its maintenance.
The second aspect of evaluating the property is a legal analysis. Any easements, encroachments, and restrictions can negatively impact the value of your real estate. It also restricts what you can do with this piece of property in the future. You want to make sure the property is at its maximum value for you to reap its benefits.
Evaluate the tenant
Triple net leases are generally given to tenants who have the best credit history and reputation. Go through a potential tenant’s financial statements to check for any red flags that could impact their payments to you. Also have a look at their history of paying other landlords too.
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