What you need to consider before investing in Triple Net lease (NNN)
Many investors are always on the lookout for how they can invest in real estate. As a real estate investor or a potential one, you probably have heard about NNN. So what is it? Triple Net lease refers to a type of lease whereby the tenant pays for the maintenance of the property, insurance, and taxes in addition to the property rent. This type of lease is best if you want less burden when it comes to the maintenance of the property. However, there are key factors that you need to consider before investing in NNN. You will also need to work with a reputable triple net lease company such as Sands Investment Group to help you find the right tenants for the property. That said, let us look at 5 factors you need to consider before investing in NNN;
The credit rating of the tenant
One of the most important things that you need to look at is the credit rating of the tenant. Will they be able to pay up the lease, insurance, taxes, and maintenance in good time? You need to find a tenant who has a good credit rating for your investment to be worthwhile. While seeking to find out the tenant’s credit rating, do not simply assume that just because they have a big name, they have a good credit rating. You will need to delve deeper into research to find out how their credit rating looks like.
Location, location, location
In real estate, the location of any property is crucial. If a property is located in a place where there is high traffic, the chances are high that it will attract many customers. Accessibility is also key when looking at the location of the property. Note that the property might be located in a high traffic area, is visible but is inaccessible.
Consider the rent estimates of similar properties in the location
Before leasing the property, you will need to do some research and find out how much rent costs in the particular area the property is located. Yes, it might sound like a good idea to lease the property at a higher rate compared to other property owners, but it might end up costing you more in the long run. You do not want to own a property that tenants keep on vacating due to the high rent, as this forces you to get back to the drawing board and start looking for new tenants every now and then.
Length of the lease
As aforementioned, finding a tenant who stays for a short period can greatly affect your income stream. For this reason, it is imperative also to consider the length of the lease when planning to invest in NNN. Of course, the longer the lease period, the better. A lease period of over 10 years is a good guarantee when it comes to triple net leasing.
The lease structure
Before signing any sale agreement, you need to go through the fine print. The lease itself has a lot of information that you might miss if you are not careful enough. If possible, you can even go through the document with your business partner or attorney to be sure that every detail is covered as agreed. This, in turn, prevents you from making costly mistakes that you would have otherwise avoided if you were keen.
Investing in real estate, particularly a triple net lease, is a brilliant idea. However, before taking the plunge, you need to consider the above-mentioned factors. Keep in mind that the goal is to get high returns on investment on any risk you chose to take.