Many real estate investors believe investing in NNN lease properties is the simplest form of investment. They see it as purchasing a bond and prefer it for its straightforwardness.
They may not be wrong, but on the contrary, understanding NNN properties can be very challenging. They’re some basic things that if you miss out on, the market might not be as friendly to you as you’d expect.
According to Wikipedia, in the United States real estate business, usually the landlord, as opposed to the tenant, is responsible for real estate taxes, maintenance, and insurance. In a “net lease,” on the other hand, the tenant or lessee is responsible for paying, in addition to base rent, some or all of the recoverable expenses related to real-estate ownership.
The business world has seen many trends in the wake of COVID-19. One of these trends is the desire to own single-tenant NNN assets. The demand for these properties has increased, becoming one of the most popular products in the real estate market.
The NNN property market is very opportunistic, and many people recognize this bit. Many have turned their sight to this market and require a long-term commercial lease property in a bid to expand their portfolio.
Steps to Investing in Triple Net Properties
As attractive as the NNN property market is, you don’t just rush into it. You’ll want to follow some steps when investing, and here they are:
1. Do Your Market Research and Determine Your Preferred Investment Returns
Investing in NNN properties could yield considerable returns depending on the tenant, location, agreed terms, construction year, landlord responsibilities, etc. With these conditions, it’s evident that having the same tenants under twCap rateso distinct investments doesn’t mean the cap rates will be the same.
Cap rates for many investments vary, and when investing, you’ll first have to do your market research and determine the type of return you want.
Ensure to stick to whatever you finalize in your research. If you decide to go for a 5.5% cap rate, you shouldn’t settle even for a 5% cap. The market is enormous, and there are many other opportunities out there. There’s an excellent chance that you’ll eventually get what you want, so don’t rush.
Also, before researching, analyze different industries and see which looks more attractive to you. For instance, if you need a restaurant, you can search up “NNN restaurant service properties.” Finally, research the current prices and fully understand where the cap rates are landing before contacting a professional for assistance.
2. Get an NNN Lease Advisor
After concluding on the general idea of what you want, the next thing to do is to get a qualified advisor, preferably an experienced one. An NNN lease advisor is a broker in commercial real estate with substantial knowledge of NNN investing. Their work revolves around finding suitable investment deals for their clients.
In purchasing NNN lease properties, many factors could potentially cause you to miss a great opportunity. Most times, it’ll be your lack of adequate knowledge in the field. Therefore, having an experienced and knowledgeable advisor in your corner puts you at an advantage.
3. Set Your Tenant and Term Criteria
Different tenants or triple net leases have various components. Some are more attractive than others. There are cases where you’ll get a desirable cap rate, and the property ends up having only three years or less left.
Tenants differ in credit ratings depending on their financial stability, location numbers, type of business or industry, etc. Naturally, you’ll notice that a client with seven locations in a specific area faces more risk than one with hundreds of sites nationwide.
Some leases come corporately guaranteed too. The bottom line is there’s a wide variation in tenants, and it’s all up to you to set your tenant and term criteria upfront so your search is narrowed down.
4. Find the Right Lending Partner
Although making triple net investments can land you outstanding deals, it’d be wise to search for a lending partner early. While doing your search, go for a lender that can operate nationwide in case of travel.
Here, you have many options ranging from your local bank to a mortgage broker. Whoever you decide depends entirely on you as long as they can conveniently source the required deals on your behalf.
Having this bit settled early puts you at an advantage as you can move swiftly once you see something that fits your criteria.
5. Compare Opportunities Before Submitting an Offer
Once you start seeing potential investment opportunities, ensure to store information about them in a safe location. Doing this is very important as you’ll most likely not keep close tabs with every property, and it could be strenuous to tour them all.
Therefore, keep all the information in one place and review them quickly whenever you discuss it with your team. You can even make a spreadsheet comparing the pros and cons of all the opportunities available.
This way, you’ll quickly decide which works best and make a move towards purchasing it.
6. Perform Thorough Due Diligence on the Asset and Tenant
When your offer is accepted, the next thing is to perform your due diligence on the asset and the tenant. If you aren’t around, get a qualified inspector in the area to prepare a good report on the property for you. If it’s satisfactory, you can then review it further and ask for the opinions of your asset manager and attorneys.
For instance, if you get a pharmacy for sale in an area, the next thing should be to send your inspector to ensure every requirement of a good pharmacy or drugstore is met. Afterward, you set up a meeting with your team and make sure you all are on the same page since there’s too much on the line. Finally, you can now get your contract!
Conclusion
The beauty of investing in NNN lease properties is that as soon as everything is in place, you’ll only have to sit back and watch your checks come in.