As a real estate vehicle, triple net lease properties generate fixed-income. They also offer little to almost no management responsibilities, with the prospect of a gradual rise in income. In other words, they work like a bond. In spite of being profitable and reliable, like other real estates, triple net lease properties have some setbacks that you may have to face eventually.
Pro: Stable IncomeCon: Limited Upside
Both fixed increases and flat rent are available in the triple net lease properties structure. A 2 million USD investment at a 7.5% cap means you can get $150,000 in return every year during the lease period. Several triple net lease properties have a built-in rent increase, up to 1%-3%. Though growth is guaranteed, it won’t necessarily keep up with inflation. However, the same goes for any types of bond; be it municipal, corporate, or treasury.
Pro: No ManagementCon: CapEx at Rollover
Triple net lease properties are structured in such a way that the owner doesn’t have to bear any responsibilities during the whole lease period. The ownership stint, however, doesn’t match the traditional real estate scenario. Moreover, owners are compelled to take part in the re-leasing process and indispensable capital expenditures to get ready for a new tenant.
Pro: Long-Term 100% OccupancyCon: Risk of 100% Vacancy
In most of the cases, triple net lease properties have at least decade long lease tenure. Often the initial terms may be as long as 25 years, as well. During the whole period you don’t have to fret thinking about vacancy. However, as soon as the lease ends it becomes an all-or-nothing deal. The same applies when there is an event of a tenant default. Nevertheless, careful due diligence can help avoid such an untoward situation.