NNN Investing: Common Questions and Answers
Are you considering investing in NNN real estate but have some questions or concerns? Don't worry, you're not alone!
NNN real estate can be a great investment opportunity, but it's important to have a clear understanding of what you're getting into. Especially since the world of triple net properties can be somewhat shrouded in mystery.
I’m going to cover some of the most frequently asked questions my team and I get about NNN real estate to help you make an informed decision.
What Is NNN Real Estate?
NNN, or triple net, real estate is a type of commercial real estate in which the tenant is responsible for paying all of the property's operating expenses, including property taxes, insurance, and maintenance. This means that as an investor, you have very little responsibility beyond collecting rent.
These investments can be:
single or multi-tenant
local, regional, or national credit
value-add or stabilized opportunities
manageable from anywhere in the United States
and office, retail, industrial, or hospitality tenants
2. What are the benefits of investing in NNN real estate?
There are several pretty attractive benefits to investing in NNN real estate.
First, it provides a stable and predictable income stream because of the way that triple net leases are structured. They’re often in the 5-10 year range or longer, allowing you to better predict your monthly cash flow over an extended period of time.
Second, it's a lower-risk investment, as the tenant is responsible for all operating expenses. You won’t have to worry about an increase in property taxes or common area maintenance expenses hitting your bottom line because those costs and passed directly through to your tenants.
Third, NNN real estate can provide long-term capital appreciation potential. Not only is the tenant paying down your mortgage as you own the asset, but the real estate will appreciate as long as the area is continuing to grow, so it’s important to buy in strategic locations.
3. How do I evaluate an NNN real estate investment?
When evaluating an NNN real estate investment, it's important to look at factors such as the tenant's creditworthiness, the lease term, and the property's location.
When acquiring NNN investments, you’re really buying the income that the lease produces, so it’s critical that you fully understand the lease that you have in-place to ensure that your investment is protected.
You'll also want to consider the property's cash flow potential and potential for long-term appreciation.
4. What types of tenants typically lease NNN properties?
NNN properties are typically leased to high-quality tenants with strong credit ratings, such as national retail chains, pharmacies, and fast-food restaurants.
But, depending on your investment goals, you could also acquire smaller commercial properties with more local / regional credit tenants like your local restaurant chain or a mom-and-pop retailer.
Each type of tenant will come with it’s own “creditworthiness,” which will impact the cap rates and value that the property will sell for.
5. What is the typical lease term for NNN properties?
The lease structure for triple net properties is often the most attractive benefit of buying these assets.
NNN properties are typically leased to tenants on a longer-term basis, ranging anywhere from 10 to 25 years. This scenario provides a more stable income stream for the investor and, as such, will often cost more to acquire.
On the other hand, you could target more "value-add” opportunities in commercial real estate where you have shorter lease terms, typically in the 1-5 year range. If those leases are under market compared to current rents, that will give you the opportunity to turn those spaces over or adjust their lease rates to market rents, thereby increasing the property value.
6. How do I finance an NNN real estate investment?
Financing an NNN real estate investment is similar to financing other types of commercial real estate.
You will need to work with a lender that specializes in lending on commercial real estate and you'll want to have a solid understanding of the terms and conditions of the loan.
There are also mortgage brokerages that specialize in sourcing commercial real estate loans for triple net investments, too, that can come in handy when you don’t want to spend all of your time sourcing debt for your assets.
7. What is the role of the investor in an NNN real estate investment?
The investor's role in an NNN real estate investment is typically passive.
Once the property is leased to a tenant, the investor receives a monthly rent payment and is responsible for very little else beyond periodic property inspections.
Triple net investments are often referred to as “mailbox money” because the ownership’s responsibilities are minimal and they will receive a rent check every month from their tenants.
8. What are the risks associated with NNN real estate investments?
While NNN real estate investments are generally low-risk, it is still an investment and there are still some risks that you should be aware of.
For example, if the tenant goes out of business or doesn’t pay their rent, you, as the owner, may be responsible for finding a new tenant or covering the property's operating expenses.
While their isn’t truly a “zero risk” investment out there, the nature of triple net investments lends them to be more secure - we like to refer to them as the “bonds” of commercial real estate.
9. How do I find NNN real estate investment opportunities?
There are a variety of ways for you to find NNN real estate investment opportunities.
You can search online real estate marketplaces, network with other investors in the industry, or work with a commercial real estate broker.
Brokers are often the go-to resources for finding triple net investments because they can filter through the many potential opportunities out there to show you only the ones that fit your criteria. They will also guide you through the entire process to help ensure that you’re buying the right site.
And the best part?
Their representation doesn’t cost you anything since the seller’s pay their commission.
My team and I here at The Cauble Group represent triple net investors from all over the country. Feel free to reach out to us to see how we can help you get started:
10. What is the potential return on investment for NNN real estate?
The potential return on investment for NNN real estate can vary widely depending on a variety of factors, such as:
the property's location
the tenant's creditworthiness
and the lease terms.
However, NNN real estate investments generally provide a stable and predictable income stream, with the potential for long-term capital appreciation.
So, they certainly won’t be as big of a value play as ground up development, but they’re certainly far more secure of an asset.
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