Real estate investments can be tricky. If you are entering into commercial real estate, things can get even more complicated. There are a lot of terms and concepts that you will have to wrap your head around. There is a concept of a single, double, and triple net lease as well that you must be aware of.
1. Single Net Leases
These are not that common, to begin with. In this kind of agreement, all the expenses such as insurance, building repairs, maintenance, and utilities are the responsibility of the landlord. The only expense that is borne by the tenant is that of property taxes.
2. Double Net Leases
In this kind of arrangement, the base rent which is payable on the space is generally lower. The tenant has to bear the monthly rent amount in addition to property taxes and insurance premiums. The rest of the expenses including maintenance and repairs are the responsibility of the landlord.
3. Triple Net Leases
The triple net leases are also called triple N leases. In this kind of agreement, the property taxes, insurance premiums, and operating expenses of the property are the responsibility of the tenant. The monthly rental fee on the building is quite nominal. If you compare any nnn properties for sale with single and double net lease properties, the former would stand out as the most viable any day.
Benefits Of Triple Net Leases In Commercial Real Estate
A few benefits of triple net leases in commercial real estate that accrue both to the tenant and the landlord
1. Accessible Location
What would you give for a prime location? You want more footfall on your commercial undertaking. Any property that comes with a triple net lease is usually located in an area that has several other businesses in close proximity. This means that you get more customers and you can achieve your sales targets more efficiently.
2. Numerous Tax Benefits
In this kind of lease, the tenant is responsible for paying several property taxes and other expenses related to the commercial undertaking. This entitles them to several tax benefits as well.
3. Reduction In Landlord Duties
With a triple net lease, the landlord has fewer responsibilities as compared to a more conventional lease. This puts them in a position to pursue other activities or maybe make other investments with their time and money.
4. Increased Equity
Triple net lease properties are a conservative and low-risk strategy that helps you (landlord) create more equity in your real estate. You can add them to your investment portfolio and may decide to sell them at a later stage or whenever the market peaks.
5. Constant Cash Flow
As an investor, this kind of lease would prove to be a consistent source of income for you. You will be entitled to a stable amount of rent every month. You don’t have to bear any of those draining property expenses because they will be passed on to the tenants.
6. Reduced Risk
The tenant is going to be responsible for all the costs related to the property. Whether it is tax responsibilities or insurance costs, all have to be borne by the tenant. It proves to be a fairly low-risk investment from the investor’s point of view.
7. Long Term Occupancy
A typical triple net lease agreement inherently talks about long-term tenant occupancy. This is beneficial for the landlord because it eliminates the risk of the property being vacant for long stretches of time. It proves to be affordable for the tenant as well because the final rent for the space is extremely low.
These are some of the most prominent benefits of entering into a triple net lease agreement. This is what makes it one of the most common lease structures presently being followed in commercial real estate.