You may be wondering, “Which are the best passive commercial real estate investments that you can make today?” Well, the answer can be quite simple—triple net lease (NNN) properties!
In this article, we will explain why these real estate assets are a good choice of investment, how to pick the right property for your needs, and how to search for potential listings.
Benefits of NNN Lease Properties
Like other investment properties, there are advantages to investing in NNN lease properties. However, these assets come with a set of perks that you will not enjoy from other types of commercial real estate.
Freedom from Major Expenses in Running the Property
When you invest in a property that is leased under a NNN agreement, you are essentially transferring the responsibility of major expenses to the tenant. These include items like roof repairs, HVAC maintenance, and landscaping costs. Apart from that, the tenant will also be responsible for the taxes and insurance on the property.
This can be a major benefit for investors who do not want to worry about such things or who do not have the time or resources to manage them.
Fewer Landlord Responsibilities
Most probably, this is the best reason why NNN properties are the best passive commercial real estate investments for investors—you will only have very few responsibilities. Aside from collecting rent each month, you will not be responsible for the day-to-day operations of the property or for screening and approving employees to work for the tenant.
This can be a great way to reduce your workload and focus on other investment opportunities.
Built-In Rent Increases
One of the benefits of an NNN lease agreement is that it typically includes built-in rent increases. This means that your monthly rental income will increase each year, keeping pace with inflation.
This can be a great way to ensure that your investment income keeps up with rising costs and helps to preserve your investment’s value over time.
Long-Term Passive Income Stream
When you invest in an NNN property, you can expect to receive passive income for many years to come. The leases usually have terms of 10 to 20 years, which gives you plenty of time to enjoy the rental income without having to worry about renewing the lease agreement and finding new tenants in short periods of time.
Financial Stability
NNN tenants are typically large, well-established companies that are unlikely to go out of business anytime soon. This means that you can be confident in your commercial real estate income stream, as it is unlikely to be affected by the financial instability of a single tenant.
This can be reassuring for investors who are looking for a safe and stable investment opportunity.
Choosing the Right NNN Property to Buy
While NNN investment properties offer significant benefits, you still have to do your due diligence in finding the perfect property that will give you the best returns. Here are the essential factors to look into when assessing potential listings.
Location
This could be the most important factor to consider in this approach to commercial real estate investing. The ideal location should be in a busy area with high traffic, as this will ensure that the tenant can generate good sales and profits from the business.
Apart from that, it is also good to choose a property that is near anchor establishments, as this will create a synergy that will benefit both the tenant and you, as the investor.
Tenant Creditworthiness
It is important to research the creditworthiness of potential tenants before investing in a NNN property. This will ensure that you are getting a good one who is likely to stay in the property for the long term and pay rent on time each month.
Some of the best NNN tenants that you can look into are 7-Eleven, Walmart, and CVS.
Size of the Property
You will want to find a property that is not too large or too small, as this will make it difficult for the tenant to run their business effectively.
Ideally, the property should be around 15,000-20,000 square feet in size.
Condition of the Property
Typically, the property should be in good condition, as this will save you money on repairs and maintenance down the road in case the property goes vacant for some time. You can get a good idea of the property’s condition by looking at its past repair records.
Lease Term
An ideal property to buy should have a lease term of at least 15 years. However, lease terms could also depend on the tenant, as their franchising agreements could differ. For example, Walmart typically prefers a 20-year lease term, while 7-Eleven is okay with shorter terms.
Cap Rate
Basically, the capitalization rate (cap rate) indicates the return potential of a property, and for NNN investments, you will want it to be as high as possible. To calculate it, simply divide the property’s annual net operating income (NOI) by its purchase price.
For instance:
If a property has an NOI of $100,000 and you paid $500,000 for it, then the cap rate would be 20%, which is a good number to consider.
Price
Last but not least, you will want to find a good balance between the price and the returns that you can expect from the investment. Try to find a property that is priced below market value, as this will give you the potential to earn a good return on your investment.
Remember to also factor in the total cost of ownership because this will affect your bottom line down the road.
How to Search for the Best NNN Properties Today
The best way to look for reliable NNN properties for sale is by working with a real estate broker who specializes in this type of investment, such as those you can get in touch with at buyNNNproperties.com.
They will have access to all the latest listings and can help you narrow down your search based on your specific criteria. They will also help you with the legwork in searching for properties and negotiating the best deal for you.
Not only that, but they also have a broad network of professionals who can help you with other aspects of the investment, such as due diligence, property management, and financing.
The Bottom Line
Without a doubt, NNN properties are lucrative passive commercial real estate investments that you can make today. They offer a high cap rate, good returns, and are typically less risky than other types of investments.
However, it is still important to remember that not all of these properties are created equal. So, you should take some proper considerations to ensure you are making the best decision there is. And most importantly, do not forget to work with an experienced broker who can help you navigate through the process.
For more of the latest tips and information on real estate, be sure to check out the other articles on our site!