Anyone who has paid any attention to the real estate sector would probably have heard about NNN leases. An NNN lease agreement between a tenant and a landlord makes the tenant responsible for operating costs associated with the property. NNN property investment is a viable way to get into the real estate industry or expanding an existing portfolio.
In this article, you will learn about finding and buying NNN lease properties for sale in California. You’ll also find out whether this type of investment is for you and how to get the best out of your investment.
What Is an NNN Lease?
NNN stands for Triple Net Lease. This type of leases places the responsibility of paying property taxes, insurance, and property maintenance fees on the tenant in addition to the rent. A triple net lease typically offers the tenant a lower base rent.
From the tenant’s point of view, an NNN lease offers a good bargain, especially if the property is in good condition. Property maintenance payments tenants may have to pay include; utilities, security, snow removal, signage, roof, parking lot, and landscaping fees.
Why Should I Invest in NNN Properties?
Triple net lease investments are attractive principally because they place most of the risk on the tenant instead of the investor. However, there are other intelligent financial reasons to consider investing in NNN leases:
NNN Leases Provide a Predictable Income Stream
Triple net lease tenants pay their rents and cover expenses at the end of each month so you can be sure of your monthly revenue.
NNN Investments Are Low Risk
NNN tenants are often credit-worthy businesses and other investment-oriented tenants so there is minimal risk of defaulting on rent or operating costs.
Minimal Responsibilities for the Investor
The landlord does not have to deal with the daily maintenance issue on the property, making NNN investments a great way of generating passive income.
Lower Turnover Rates
NNN tenants usually plan to stay for the long term. A single lease contract can last over ten years, so you don’t need to stress searching for tenants. The locations of these types of businesses are often ideal for business. You may not have to look too much to find a new tenant in the event of a tenant’s departure.
Easy to Invest Anywhere
An NNN lease investor can have property anywhere in the country since his responsibilities are minimal.
What to Look Out for Before Investing in Triple Net Leases
Like any other real estate investment, there are some issues you must iron out before committing to an investment decision.
Tenant Credit
Having the right tenant to occupy your property is key to your success. The ideal NNN tenant should be recognized nationally, have little or no debt and a high credit rating. You also want to have a tenant who has a business model you understand. It is better to lease your property to a parent company rather than a subsidiary/
Another way to assess a tenant’s viability is by looking at their susceptibility to an economic downturn. A company that deals in prescription medicine will be preferable to a company that deals in designer perfumes.
Ensure to Get the Right Lease Structure
There are several types of lease structures, and you would be better off with a contract that states you are entirely free from payments concerning taxes, maintenance, and utility costs. Ensure to have a competent real estate attorney read any agreement before you sign any document.
The Market
Ensure you study any market before investing. Your market analysis should cover data like demographics, traffic, and population growth potential. Properly analyzing the market will help you find a property with enormous market appreciation prospects.
Length of the Lease
It’s always better to have a long lease of at least ten years. The income you generate from the rent lease will be short-lived if you invest in a property with a short lease. You might also need to spend more money re-leasing the property on the expiration of the lease.
NNN Lease Properties for Sale in California
California is home to some of the best NNN property investments. NNN properties in the state are owned by individual investors and real estate investment trusts (REITs). Sellers often use a 1031 property exchange to trade for better investments.
You can find Chase Bank NNN properties, ground leases for sale and other reputable NNN property listings in California by checking our listings for the state. We help investors find stable, long-term NNN lease investments from reputable brands with less risk and more reward.
How Do I Finance an NNN Investment?
Financing a deal for an NNN investment comes with specific requirements. If you need debt to buy an NNN property, lenders will typically require you to pay about 30-40% upfront while still maintaining liquidity in your portfolio.
Every NNN deal is unique and financial institutions do a case-by-case analysis using factors like the length of lease, location, tenants’ creditworthiness, expected increases throughout the lease, among other factors.
Potential Drawbacks of NNN Leases
Triple net leases are low-risk, high-reward investments that prove value for money more often than not. However, a wise investor must be aware and possibly plan for potential adverse scenarios like:
- Overestimating the potential of the tenant to pay
- NNN earnings are capped
- Fluctuating interest rates on credit
- Leasing entities may be subsidiaries of companies
- High rollover costs
- It may not be easy to find a new tenant if the previous one leaves
Conclusion
Investing in an NNN lease for sale property in California or anywhere else is one of the more straightforward ways of finding your feet in the real estate industry.
Like all investments, you should be aware of the potential risks before giving it a shot. An NNN lease investment lets you earn consistent income from real estate with minimal landlord responsibilities.
Every investment situation comes with unique qualities, and you may require professional help to evaluate the property’s details. If you’ve done due diligence and feel right about the investment, then go for it.
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