Are you in the real estate market looking to buy triple net properties for sale? Are you feeling overwhelmed by all the variables that come with investing in these types of assets? Don’t worry. We got your back!
We are here to provide you with an expert guide through the process of pinpointing which triple net property will yield the best return for your investment. From understanding what a triple net lease is to knowing how to make the property-hunting process a lot smoother, you will learn all you need to know to make your investment journey successful.
So, let us dive in!
Understanding Triple Net Leases
A triple net lease (NNN) is a contractual agreement between the property owner and the tenant, where the latter is required to pay rent on the property, as well as all associated taxes, insurance premiums, and other expenses related to running the property.
Typically, these leases are used for commercial properties, such as gas service stations, pharmacies, convenience stores, auto repair and parts shops, general retail stores, medical offices, fast food chains, and restaurants. Some popular examples of these commercial real estate investments are Shell gas stations, 7-Eleven stores, Walgreens pharmacies, and Burger King franchises.
The main point in investing in NNN properties is that you can enjoy a stream of income without having to manage any of the day-to-day operations or be liable for any of the maintenance costs associated with owning physical real estate.
Why Invest in Triple Net Lease Properties
When you invest in triple net lease properties, you will enjoy a certain set of benefits that you do not find in other real estate investments. Here are some of the top reasons why you should consider investing in one.
Consistent Cash Flow
Most triple net leases include long-term contracts that guarantee a fixed amount of rent for a specified period of time, providing investors with a consistent stream of income. This makes these properties attractive to novice and experienced investors alike, as it eliminates some of the risks associated with investing in more volatile markets.
Passive Income
NNN properties could be considered one of the best assets for passive income investors. The property owner does not need to handle any of the day-to-day operations, and all maintenance costs are covered by the tenant. This makes it a great option for those looking to generate long-term passive income without having to manage the property themselves.
Low Maintenance Costs
As mentioned earlier, tenants are responsible for all maintenance costs associated with running the property. This means that you will not have to worry about dealing with any unexpected expenses or repairs during your investment tenure.
Fewer Landlord Responsibilities
As an owner of an NNN property, you will enjoy a lot fewer responsibilities than a traditional landlord. This means that you will not have to worry about finding and screening tenants, dealing with late rent payments, or managing any of the daily operations associated with running a property.
The only thing that you need to do is collect rent payments and make sure the tenant is meeting their obligations as stated in the rental agreement.
Low Tenant Turnover Rates
Since triple net leases are typically long-term agreements, you can expect a low tenant turnover rate which is beneficial for investors. So, even if you buy single tenant properties, you will have the assurance that they remain occupied and generate income on a consistent basis.
Better Terms on Loans
Because lenders would look at an NNN property as a low-risk investment, you can expect to get better terms on the loan. This could include lower interest rates, higher loan amounts, and longer repayment periods.
Tax Benefits
NNN properties offer investors tax incentives that are not available with other types of real estate investments. For instance, you may be eligible for depreciation deductions and mortgage interest deductions.
These properties can also provide you with a steady income stream during retirement, which can further lower your overall tax burden.
Finding the Perfect Triple Net Lease Property: 7 Key Factors to Consider
Now that you know why triple net properties for sale are such a great investment opportunity, it is time to learn about the factors that you should consider when looking for one. Here are seven key elements you should evaluate when selecting an NNN property.
1. The Tenant
A triple net lease tenant’s creditworthiness will play an important role in determining the success of your investment. Make sure that the leased tenant is financially stable and can pay their rent on time and in full each month. If possible, try to get a copy of the tenant’s financial statements before signing any agreement.
It is also essential to know how long the tenant has been leasing the space. Generally speaking, those who have stayed in the same location for several years are less likely to leave abruptly than those who are more transient.
When looking for NNN properties to buy, it is best to find popular brands, such as those from major retail chains, that are likely to attract repeat customers. As the tenant has a direct impact on the success of your investment, take the time to evaluate their creditworthiness carefully.
For properties that are occupied by successful tenants in their own right, you can visit buynnnproperties.com. Here, you can find a variety of NNN properties owned by prominent tenants, such as Dollar General, Starbucks, and Walgreens.
2. Location
Location is always an important factor to consider when investing in real estate. And, when it comes to buying NNN investment properties for sale, this factor becomes even more important.
Ideally, you should invest in a property in an area that has strong economic fundamentals and a positive outlook for the future. Look for properties in locations that have experienced population growth, increased job opportunities, improved infrastructure, and more recreational activities. Thus—the importance of doing local market research before investing.
When doing your research, do not forget to check out the local crime rates as well. A property located in a safe neighborhood is less likely to experience tenant turnover, making it a more attractive investment opportunity.
To get a better idea of a potential property’s location, you can visit the area and conduct a drive-by inspection. This will give you an up close and personal view of the area to determine if it is the right fit for your investment goals.
3. The Property’s Condition
Of course, you will also want to make sure that the property is in good condition and well-maintained. Be sure to inspect the building for structural damage, mold, and other types of deterioration.
In addition, take a look at the exterior portion of the building, such as the landscaping and parking area. Make sure these areas are properly maintained as well.
When inspecting the interior of the building, you should verify that all necessary repairs have been made or arrangements have been set up for them to be completed before closing on the purchase. This could include replacing broken windows or repairing any plumbing issues.
If there are any lingering maintenance issues that need to be addressed prior to your investment, make sure they get taken care of promptly.
4. Lease Term
When investing in a triple-net property, you will be assuming the obligations of the existing lease agreement between the landlord and tenant. Therefore, it is essential to review this document thoroughly before making your purchase.
Make sure that all information contained in the lease is accurate and up to date. Pay particular attention to renewal terms, such as whether or not there are any rent increases written into the agreement. Also, make sure that you understand who is responsible for maintenance costs like landscaping or roof repairs.
If you have any questions about a specific provision outlined in the lease agreement, consult with an experienced real estate attorney familiar with NNN properties. This professional can provide valuable insight into the risks and rewards of a particular lease agreement.
5. Cap Rate
One good performance indicator for a potential NNN property for sale is the capitalization rate (cap rate). This metric takes into consideration the purchase price of the property and its expected income, as well as other factors, like operating expenses.
A higher cap rate is generally viewed as a sign that an investor should pursue a particular deal. However, it could also mean that it comes with higher risks. There are many variables to consider when determining if it is a good investment or not. Thus, you should compare the cap rates of similar properties to gauge whether or not it is worth pursuing.
Generally speaking, a good cap rate for commercial properties, including NNNs, ranges from 5% to 10%. So, if you find one that is within this range, it might be a good investment to pursue.
How to Calculate Cap Rate?
Calculating the cap rate is fairly simple using the following formula:
Cap Rate = Net Operating Income / Current Market Value x 100
The NOI is the total expected income from a property, minus expenses like taxes and insurance, while the market value is the purchase price of the property or its estimated market value.
So, for instance, if you have an NNN property for sale with a market value of $1,000,000 and an expected NOI of $70,000 per year, then the cap rate would be 7%.
6. Local Zoning Regulations
Sooner or later, the opportunity for property improvement will present itself. Perhaps, you would like to expand the building or re-purpose it. Before investing in an NNN property, you should determine if there are any local zoning ordinances that would restrict these types of changes.
If the area is zoned for commercial use only or contains restrictions on certain renovations, then this could affect your returns on investment in the long run. Therefore, be sure to review any relevant documents before closing on a purchase and make sure you understand how local zoning regulations might impact your plans for the property.
7. Price of the Property
The price of a triple net property for sale is usually determined by the current market conditions and its potential income. So, try to negotiate a fair price based on these factors.
It is important to remember that many sellers will overestimate the value of their properties due to sentimental reasons. Therefore, it is essential to assess comparable properties before making your offer, as well as have a clear idea of what you are willing to pay for the property in question.
Benefits of Working with a Realtor When Investing in NNN Properties
The world of NNN investment can be fiercely competitive, and if you are new to the game, it can be hard to know where to start your search. That is why appointing a realtor who specializes in these properties is highly recommended.
A trusted realtor with extensive knowledge of the NNN market can point you to the best passive income properties and guide you through the buying process from start to finish. Here are the benefits that come with working with this professional.
Expert Advice
An experienced realtor will have detailed knowledge of the local triple net market and can provide invaluable guidance on how to maximize your property’s potential. There will be a lot to know about NNN investment, and a realtor can provide you with expert advice on the best approach to take. They will be there for you every step of the way, from assessing your options to negotiating prices and closing deals.
Extensive Property Listings
If you search for properties with a realtor, you will have access to a wide selection of listings that you may not find on your own. Realtors can quickly find the best opportunities for you and offer you more than just a list of relevant properties—they will also give you the inside scoop on which are worth pursuing and why.
These professionals would even have access to properties that are not listed publicly yet, which could be a great way to find lucrative deals.
Superb Negotiation Skills
Successful NNN realtors have been in the business for a long time, and they use their vast experience to negotiate the best deals for their clients. They have an in-depth understanding of what a fair market price is and can use their negotiation skills to land you the best possible deal.
Realtors also work closely with buyers and sellers, so they are always updated on the latest information associated with triple-net lease investments. This makes them ideal partners when it comes to finding properties that match your criteria at competitive prices.
Time Savings
Finding triple net properties for sale on your own can be a time-consuming process, but with the help of a realtor, you can cut out a lot of the legwork. Realtors are experienced in searching for and connecting buyers with suitable properties, so they can do most of the research for you.
They can also provide advice on how to make your offer stand out from the competition, saving you valuable time and energy in the process.
Connections with Other Real Estate Professionals
The most successful realtors build robust networks, where they are connected with brokers, lenders, contractors, inspectors, title companies, etc. This type of wide-reaching network is hard to develop as an individual, but a realtor can tap into these resources to provide you with the help you need.
They can even connect you with potential tenants and other investors who may be interested in leasing or purchasing your property. This is especially beneficial if you are looking to offload your property in the future.
With all the great benefits of working with a realtor when investing in triple-net properties, there is no reason for you not to seek assistance. So, find someone who specializes in these types of investments and get ready for the journey ahead.
Final Thoughts
Investing in triple net properties for sale is a great way to build wealth through real estate and ultimately achieve financial freedom, without the taxing responsibilities of being an archetypal landlord.
However, you should make sure you are making the right decisions throughout the process. By following the tips mentioned above and working with an experienced realtor who specializes in this type of investment, you will be good on your way to finding success in the NNN market.
Good luck on your triple-net real estate journey!
The post Spotting the Best Triple Net Properties for Sale – A Comprehensive Guide for New Investors appeared first on Ulric Home.
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