The typical idea a lot of people have when leasing a property is that all they have to pay for the property is their rent and probably any other additional expenses that may be required of them.
As it concerns payment when leasing a property, we have various aspects, it could be a gross lease or a net lease. A net lease includes the single net lease, double net lease, and the triple net lease. These three differ, one from the other, but we’ll be taking a look at triple net lease here.
A net lease is a contractual agreement that would have the lessee paying a particular sum of costs concerning a property or paying all of it which includes the rent of the property.
Unlike in a gross lease, where the landowner is responsible for other payments concerning the land and the tenant only has to pay a rental fee. In a net lease, the tenant is assumed to be the landowner to an extent and pays for certain costs that are associated with the property.
A quick look at the various forms of net lease and what they entail so triple net lease can be easily understood.
Single Net Lease: In a single lease, the landowner gives the tenant the responsibility of bearing a little risk, which is to pay for the property taxes in addition to their rent, this addition reduces the rent, and the landowner goes ahead to cover other costs and expenses that will be incurred, such as maintenance.
Double Net Lease: For a double net lease, the tenant pays for both the property taxes and insurance premiums in addition to the rent. This also reduces the rent to be charged by the landowner. Other costs, such as maintenance costs are taken care of by the landowner.
For a triple net lease, an agreement is made by the tenant to pay other costs apart from the rental fee of the land, these other costs are; maintenance cost, building insurance, and real estate taxes.
If the agreement made was not a triple net lease, then such costs or expenses will be borne by the landlord and not the tenant. As a result of this responsibility which the tenant assumes to handle the various expenses, the charge of rent will be lower.
The triple net lease which is also known as (NNN) net-net-net lease are usually long term, which is around 10-15 years They usually involve more than a single building, with each building serving a different commercial purpose, all within the control and maintenance of a single tenant. In a triple net lease, the commercial properties being leased out may include, industrial parks, office buildings, and shopping malls.
The triple net lease has great benefits, and one of that is the potential increase in the value of the property over some time. As one also accommodates other tenants into various aspects of the line of properties, it brings about a reasonable level of stable income.
The amount paid for taxes, insurance, and maintenance may not be much of a burden as long as other tenants are occupying other areas and making their monthly payments as it is required of them.
On the other hand, a major drawback might be when constant repairs are being made on the property, eating deep into the revenue that should be generated.
The vacancy can be also another problem. Having no one occupying a property and still paying for the cost associated with the property isn’t what anyone who has invested much into a particular property would want.
Those who desire to invest in a triple net lease, have to be accredited with a net worth of a minimum of $1 million which excludes their primary residence value or an income of $200,000.
For one seeking to take on investment in triple net lease, proper research should be carried out on any property which they are interested in. This is to avoid spending more on repairs and maintenance during the duration of the lease, thereby reducing their potential returns on investment.