On the other hand, the Triple-Net lease is a commercial lease that aims to pass on the maintenance costs to the tenant as far as possible. With such a contract design, real estate should be made interesting as an investment object, especially for capital market players who have to consider a certain risk profile with their investments. In particular, because the fluctuating maintenance and repair costs are to be borne in full by the tenant, contrary to the statutory rule, the rent remaining with the landlord is relatively constant and offers a good basis for calculating the return. In the case of the triple-net rental, however, this deviates to a considerable extent from the legal model of the rental agreement. Such contract designs are, therefore, only permissible, even in the commercial sector, within the framework of individual agreements (and not in the general terms and conditions provided by the landlord).
Triple net lease
The term “triple net” rental agreement comes from the Anglo-Saxon and describes rental agreements with which the landlord earns rental income “three times net” by taking on all of the maintenance, repair, and renewal obligations (also for the roof and compartments). Levies and insurance costs that are normally the responsibility of the landlord are passed on to the tenant, who also pays the taxes. The “triple net” refers to the rent achieved from the landlord’s point of view: net after taxes, after public charges and insurance, and after operating, ancillary and maintenance costs. This net rent is shared between the bank (for interest and amortization of the borrowed capital made available to the investor) and the landlord (as a return on his capital invested in the property).
There are special marketplaces like triple net properties for sale – Net Lease World that help you find the best option. In Great Britain, such leases are known and widespread but are referred to as “full repairing and insuring leases” (abbreviated: FRI leases), while in the USA, they are called “triple net leases,” alluding to the triple net rental income that can be achieved by the landlord and is also known and widespread. In this way, the lessor achieves income from the property that is as constant and, therefore, predictable as possible, which can be used to pay interest and amortization contributions, in which the financing bank is also interested.
If the landlord is a real estate fund or another institutional investor, the individual investor is able to calculate the return transparently since the risk of variable variables, such as costs for maintenance and repairs, is almost completely shifted to the tenant. Foreign banks, in particular, which are willing to grant a loan of 90% of the purchase or market value of a property, require that a constant, precisely quantifiable income be generated from the property during the contract period. This is to ensure that the borrower will be financially able to meet the ongoing obligations under the loan agreement of nnn for sale.
Investment Volume And Returns
Depending on the region, solid investments can occasionally be made from as little as US$800,000. More typical prices from around $1.0 million to over $80 million for individual NNN properties, they are higher for a NNN portfolio with several properties. You can explore the investment properties at nnn for sale – Net Lease World to understand which one is more suitable for you.
NNN properties for sale can be acquired by an individual investor or by a group of investors, usually in the form of a closed fund. Either way, thorough tax, and legal advice is required before signing a letter of intent or a purchase agreement. Current returns range from around 4.00 percent for the strongest tenants to around 7.0 percent for regional, less well-known tenants but are also typical for short lease terms. Occasionally there are also offers below 4.0 percent on the market; with investor interest steadily increasing since 2020, a picking-up market and, as a consequence, slightly falling returns can be observed.
In principle, nnn properties for sale can be financed; the material value of the property with land and a defined inflow of capital is available as collateral. The mortgage conditions essentially depend on the location, the property itself, and also the tenant. Because of these variables, a range of credit conditions cannot be outlined here in general.
“Trophy” real estate and popular states such as Florida often offer lower returns due to higher demand volume and a perceived image gain. The investor has to decide what level of risk best suits his/her existing portfolio, diversification plans, and investment profile. Possible increases in the value of the property are not included in the yield but are occasionally reported separately in a so-called IRR (“Internal Rate of Return”). Every investor has to judge for himself how seriously and precisely a future increase in value can actually be calculated.
Security
The security of the investment is based on three components:
- 1. The tenant’s creditworthiness.
- 2. The owner registered in the land register is the investor, in an advantageous legal form chosen by him. This means that the buyer has all the rights to real estate ownership in the USA. Worth mentioning, in particular, is the possibility of lending, selling, and – in addition to the current return – benefiting from a possible increase in value.
(Note: in the case of a “ground lease,” equivalent to a building lease, the buyer has only acquired the use of the property for a certain number of years, he does not own the property. This means that essential ownership rights and advantages are lost.)
- 3. The alternative use by a new tenant, should the worst possible case arise: the tenant closes the location and is also insolvent. A selected property in a good location should also be of interest to other tenants and not just a specific operator, as in the example above.
Using the risk and security variables, a buyer can decide from investment to investment where the desired balance between return and risk lies.
Liquidity of the capital investment: a major disadvantage of real estate – the lengthy sale compared to, e.g., securities or gold – exists to a lesser extent with nnn for sale for two reasons. Firstly, in the case of a sale, not only a building with the land is offered, but with an ongoing rate of return based on a precisely defined income stream. Secondly, the sales process can be controlled and, if necessary, accelerated by the level of return offered.
