Benefits and Risks of Investing in NNN Properties

Benefits & Risks of NNN Properties

For many investors, single-tenant NNN properties are considered to be a lucrative option. The unique Triple Net structure ensures a consistent income flow with almost zero obligations. In many NNN leases, the only thing an investor has to do is receiving their rent checks. There is however no riskless investment; and NNN properties are not an anomaly. So, before you invest in a NNN property, must take in consideration the following facts.

Benefits of a NNN Property

  • Passive Investment

Though it is hard to find similarities between different lease agreements, generally the tenant has to bear all forms of property taxes and the cost of operating and insurance. And, tenants usually tend to pay directly.

  • Predictable Revenue Stream

Since the tenant has the sole responsibility to bear all expenses related to property, the net cash flow is not likely to be affected by expenses and fluctuations. No matter whatever the expenses are, the rental rate is a direct cash flow to the investor.

  • Portfolio Diversification

Similar to investing in other types of real estate, NNN properties offer many benefits. Real estate returns do not shift in line with bonds and stocks, so it can add a huge diversification value to an existing portfolio.

Risks of a NNN Property

  • Tenant Credit

NNN properties allow you to invest in both the tenant occupying the property and physical asset. Tenants who maintain sustainable credit ratings have a lower potential of defaulting on the lease. Certainly, investors use lower yields as a medium of paying for strong credit.

  • Rental Rates

Although a rental rate above the average market ceiling is considered negative, consider the situation when the tenant vacates: the property will be backfilling continuously at the prevailing rate. So, consideration should go to the remaining lease term and the credit of the tenant instead. Long remaining term and strong credit are always preferable to short remaining term and marginal credit.

  • Binary Nature

For cash flow, a NNN property is solely dependent on a single tenant. The lease could be either 0% or 100%. Review the property’s ability to attract new tenants, in case the present tenant leaves. It is always difficult to repurpose or backfill highly specialized properties.

In conclusion, I would recommend conducting as much due diligence on properties and leases you can before considering buying a property. You can view and request information on properties for sale here or contact one of our investment property specialist to break down the analysis for you.

About the Author

Dwaine L. Clarke is the Founder and President of GCT Net Lease. GCT Net Lease is an investment real estate services firm exclusively focusing on Single and Mult-Tenant Net Lease Properties. The firm provides a full range of brokerage and advisory services nationwide to High Net worth Investors, Developers, REITs and Institutional Investment Funds. GCT Net Lease is headquartered in Windsor Connecticut. Dwaine is also a nationally recognized speaker and consultant. He is also the author of three best selling commercial real estate investing books. Mr. Clarke’s experience branches through close to over a decade of working with and for some of the nation’s top investors to purchase, underwrite, develop and manage millions of dollars in commercial investment real estate. For his case, he has not only assisted these investors, but also became a student of theirs. Through careful analysis he started to understand what these investment experts were doing, using top strategies to buy, manage and sell their investment properties for maximum profit. He especially took note of how these investors were leveraging their time and how they made their decisions without interfering with their personal or business lives. Mr. Clarke is also active in investing and creating real estate partnerships, providing a vehicle for high net-worth individuals to own income producing real estate.

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