A triple net lease (NNN or triple-net) or triple net lease is an agreement to lease a property in which the tenant or lessee agrees to pay all expenses of the property. Including real estate taxes, building insurance and maintenance.
These payments are in addition to rent and utility fees. In general, these payments are typically the responsibility of the owner in the absence of a triple, double, or single net lease.
- In a triple net lease (NNN), the tenant pays for real estate taxes, building insurance, and maintenance. As well as rent and utilities.
- Triple net leases tend to have a lower rental rate because the tenant bears more of the ongoing costs of ownership.
- A single net lease on a commercial property includes property taxes in addition to rent.
- A net double contract on a commercial property includes property taxes and property insurance in addition to rent.
- Triple net leased properties have become popular forms of investment because they provide stable income with low risk.
Understanding triple net lease (NNN)
If a property owner leases a building to a company under a triple net lease, the tenant is responsible for several things. These include: property taxes on the building, building insurance, and the cost of any maintenance or repairs the building may require during the lease term.
In return, the rent charged in the triple net lease is usually lower than that charged in a standard lease. The capitalization rate, which is used to calculate the lease amount, is determined by the creditworthiness of the tenant.
In real estate, a net lease is a lease in which the tenant must pay some or all of the taxes, fees, and maintenance costs of a property.
A single net lease requires tenants to pay property taxes in addition to rent.
And a double net lease usually refers to property insurance.
Special Triple Net Lease Considerations (NNN)
Triple net leased (NNN) properties have become popular investment vehicles for those seeking stable income with relatively low risk.
These types of investments typically consist of a property portfolio with three or more high-grade commercial properties. These are fully leased by a single tenant with existing cash flow on site. Commercial properties may include office buildings, shopping malls, industrial parks, or stand-alone buildings operated by banks, drug stores, or restaurant chains. Typical lease term is 10-15 years, with a built-in contractual rent increase.
Investor benefits include long-term stable income with the potential for property capital appreciation. Investors can invest in high quality real estate without worrying about management operations. These include: vacancy factors, tenant improvement costs, or rental rates. When properties are sold, investors can invest their capital in another triple-lease investment tax-free through a 1031 tax deferred exchange.
Triple net lease (NNN) investors must be credited with a net worth of at least $1 million excluding the value of their primary residence or $200,000 in income ($300,000 for joint filers).
Smaller investors can participate in triple net real estate by investing in Real Estate Investment Trusts (REITs) that focus on such properties in their portfolios.