6 Reasons Why NNN Property Investment Might Be Right for You

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists: Purchasing triple net properties maybe the right opportunity for your investment portfolio provided you have the expertise or a team of experts on your side.

Randy_Mason_480x270

Purchasing triple net properties maybe the right opportunity for your investment portfolio provided you have the expertise or a team of experts on your side.  Here are some reasons why an investor may want to purchase triple net properties for his/her portfolio:

1) Generally longer lease terms. When a company leases a triple net building, generally, they are going to be signing three to five and possibly longer year lease terms.  Most businesses don’t want to relocate every few years, and if it’s an industrial, or retail property,  the lease terms tend to be on the longer end.

2) Ease of management. Having a triple net lease on a property generally provides more of a hands-off approach for the property owner. Depending on the lease, the tenant is required to take care of most building maintenance issues as well as paying the property taxes and other expenses.  Intelligent owners keep an eye on the property to make sure the tenant is living up to their side of the lease terms.

3) All your eggs in one basket.  Should the triple net property be a desirable piece of real estate, and relatively easy to lease, many owners would prefer to have fewer properties producing the same income then multiple properties.  Fewer properties generally equate to fewer headaches.  The investor must understand though that with all of your capital in one property, if something tragic happens all of your funds could be tied up.

4) Opportunity to raise the property value. If a larger investment is purchased, and there is the opportunity to raise the rents, the value of the property will increase presuming a static cap rate is used.  The income will be greater due to the fact of it being a larger investment.

5) Creative financing options. Commercial real estate loans can often be more flexible than residential loans. You can also use various combinations of financing.  You can borrow a percentage of the property from a lender, such as a bank or insurance company, have the seller carry back some money and borrow the additional funds from private investors.  Should you borrow money from the seller, they may even be willing to negotiate on the interest rate and terms.

6) Why not pay all cash? Some investors are concerned about balloon payments on loans and the challenges (and opportunities) that those provide.  A way to circumvent any balloon payments is simply to pay cash for the property.  One does not need to worry about any balloon payments and can focus on the cash flow being generated by the property.

Purchasing Triple net properties is an exciting way to enjoy the benefits of real estate ownership while limiting potential losses; however, always understand the lease and its ramifications on the investment.