What you need to know about NNN Properties
What is a NNN Property?
A triple net leased (NNN) property is a commercial property that has a lease agreement in place whereby the tenant is responsible for all, if not most, the expenses of the property including taxes, insurance, and maintenance. The original lease term is typically 10 - 25 years. (A single net lease on the other hand would require tenants to only pay taxes in addition to rent and a double lease would include taxes and property insurance).
NNN properties offer the owner the benefits of a dependable income stream derived from the monthly lease payments from the tenant and are hassle free as they require little to no active management. Direct ownership in NNN properties appeal to many people because of the ability to defer future gains by doing a 1031 exchange upon sale of the property.
What's the value of a NNN Property?
Capitalization rates (cap rates) are used to value the property as well as used to calculate the rate of return the property is expected to generate. The lease terms provide the net operating income (NOI) of the property. The cap rate is the NOI divided by the properties purchase price. Cap rates are helpful to compare relative value of similar properties in market, but shouldn't be used to as the sole measure of value.
Further, cap rates have many significant factors that weigh into the final percentage that you see. Internally, we consider heavily the following factors, among others:
The strength of the guarantor
Tenant industry
Lease term length and type
Lease bumps
Property location
With countless available NNN properties for sale in the market, it is important to consult your professional advisors on a purchase of real estate. Our group has done 100+ NNN property transactions. Give us a call at 385-881-1031 to see what's available!
Comments