In the United States real estate business, "net lease" is a term used for the arrangement in which the lessee or tenant is liable to pay, in addition to the principal lease, partly or all of the costs associated with real-estate ownership. These expenses, often called "three nets", are property, insurance, and maintenance taxes. Since rent collected under a net lease is net of expenses, it tends to be lower than the rental fee charged under a gross lease. This type of net lease includes net, double, and triple net leases, with the term "net rent" often used as a brief expression for either of these arrangements. Threefold net rent ( ie , net of the three major cost categories) is often abbreviated in writing as " NNN lease ", but is still pronounced as "net lease of three".
Video NNN lease
Variations of NNN rent
The rent of a single tenant
The investments NNN leases are generally leased to a single tenant and thus are referred to as STNLs or Single Tenant Net Leases. However, the NNN lease investment may have two or more tenants, even though it is not considered a STNL investment. An example of this is Starbucks & amp; MetroPCS that shares buildings under two separate NNN leases, or retail strip centers where all tenants are wrapped up in one NNN lease. Both examples will be considered as investments that are leased by NNN; But they will not become STNL. The default risk is spread across more than one tenant in the NNN transaction (ie If Starbucks or Metro PCS goes bankrupt, other renters continue to pay rent due under their NNN lease). Such transactions can attract investors who want to spread the risk, although the simplicity of collecting one rental check from one tenant will be forfeited.
Double net rental
Another variation of NNN lease is NN lease or "Net-Net" rental which is pronounced "double net" in which the amount of "net" is generally property tax and insurance. Double net rent, such as triple net lease, usually, though not always, a single tenant setting, but the owner carries some additional financial maintenance obligations. Some Dollar Discount stores and Auto Parts dealers operate under double net rent, where the owner is responsible for the roof and building structure. The term "Net Lease" is released freely in the net rental industry, often used when referring to a three or two-fold net rent; but there is a definite difference between triple net and double net lease although some brokers incorrectly use the term "Net Rent" to describe both. Double net rent investments are generally traded at slightly higher CAP rates than net leased triple investments, because of the responsible maintenance costs of the landlords. The new NN offerings with long-term builder guarantees covering the roof and sometimes the structure can be attractive to investors looking for higher returns.
Maps NNN lease
Risk
Although NNN leases investments deemed to strongly avoid investment risks, especially when hired for national credit tenants, the owners are still exposed to some financial risk. In the fine print of most NNNs, this risk lease is determined. For example, who carries the obligation to rebuild after an accident (including a natural disaster) or does the tenant continue to pay rent if the property is criticized? In other cases, certain risks (eg fluctuations in property tax) can not be fully accounted for in the initial contract, forcing the owner to estimate these costs early on. In this scenario, if the landlord accountant does not follow through by properly changing the invoice, it may cost the owner thousands of dollars at the end of the tax year. Although NNN lease investments carry relatively low risk, they require high levels of supervision for this reason.
In one variation of the NNN lease contract, "NNN tradable leases" (sometimes referred to as "true triple net" or "absolute net triple lease"), the lessee may not terminate the lease or seek lease deductions under any circumstances, provisions that reduce some of the risks for the owner.
Benefits
For investor
NNN rents
Investors can benefit from the NNN rental property in various ways. In NNN, tenant leasing assumes major expenditure responsibilities such as HVAC and roof repairs that make operating costs lower for building owners. Usually rent NNN has a lower rent per square foot rate that increases the pool of tenants when a landlord is ready to rent a property. For certain tenants, landlords will often modify the lease to allow for greater flexibility and higher tenant retention.
Absolute net rent
Most investors in the net rental market today prefer a truly passive investment, therefore, absolute net rent is a requirement for many of these investors. Investors prefer to hold these assets in the long run, which means there may be some wear maintenance, as well as a roof that needs to be replaced at some point. With absolute net rent in, the risk of costs associated with building maintenance is shifting only to tenants, allowing owners to receive 100% of passive investments.
Exchange NNN 1031
In its simplest form, the 1031 exchange is a tax deferral strategy for real estate transactions in which a property owner or investor sells one property and purchases another property within a certain period of time. The transaction must qualify as a "similar" exchange.
For renters
Often NNN leases will offer a lower monthly rental than a dirty rent because the tenant will be responsible for maintaining the building. In the lease of NNN the lessee is responsible for maintenance and repairs, therefore the cost savings for expenses related to the operation of the building are forwarded to the lessee rather than the owner.
Common misconceptions
"Interchangeable NNN leases", the most extreme form of NNN lease investment, are often used incorrectly in the net rental industry when referring to NNN properties that are occupied only by investment class tenants. Tenant credit rating is an important factor that lenders consider in their decision to lend property and on what terms; However, it is not the characteristics that distinguish triple bondable nets from the standard triple net lease investment. When evaluating the value of credit tenant loans, most brokers, and lenders base their analysis on credit ratings collected by one of the major credit agencies (Moody's, Standard & Poor's, Dunn & Bradstreet). Although these rankings are important, they do not always paint the most accurate picture of the overall picture of the company and its future feasibility. Some brokers offer services from in-house stockbrokers and analyze tenants' finances and stock tenant performance when tenants are publicly traded on the exchange. Many things can be learned by examining the performance of credit tenant shares compared to other industry competitors. Other readily available metrics such as P/E ratio, PEG ratio, and debt to equity ratio can be an indicator of the financial health of the credit tenant.
Components and value of a single tenant lease
The value of the leased net investment is determined by the value of the real estate, the value of the tenant of the credit, and the rent value itself.
- In NNN's rented investment, landlords own land and buildings while collecting rent from tenants. If the tenant chooses to leave or the owner decides he wants a different tenant when the lease period is up, he still has the building and the land. The location of the land and the potential of the leaseback must be taken into account. The planned developments in the region as well as current and future demographic trends all affect the value of real estate. Physical building must also be taken into account when determining the value of real estate.
- The second value determiner is the quality of the tenant of the credit. This is generally determined by the current tenant credit rating and previous financial statements. Future financial projections are also important indications of financial strength. Most investors use Standard and Poor's credit ratings. To qualify as an investment class tenant, the company must be rated BBB- by Standard and Poor's. The property rented by the tenant of credit is in the highest demand and therefore the order of capitalization rate is lower than the non-investment class tenant.
- The third determinant of the value is the rent itself. As mentioned earlier, NNN leases are more valuable than NN leases because the owner is responsible for multiple charges in double net lease. The length of the lease is also a determinant of value (20 years of guaranteed income will be worth more than 10 or 15 years term). A large rental increase, also known as a rent mound, adds to the rental value and protects the owner against inflation. Some rentals also have a percentage lease kick if their gross sales reach a certain CAP. Most rentals provide tenant options for renewal (some short-term options put the landlord in a weaker position when it's time to rebuild the new one). Is the current lease called for rent under the market? If they are the owners have the opportunity to order a higher lease when the lease period is up.
Planning net rent as an investment tool
NNN lease planning is a rich investment tool that gives investors plenty of opportunities to navigate an ever-changing market. NNN's lease investment is basically an inflation-protected bond that is secured by a credit tenant, rather than a state or municipality. Tenants make monthly payments to the owner, while real estate (and often rent a mound called on lease) provides investor protection against inflation. Bonds have long been a popular investment tool among retirees and high-income people looking for a steady income without having to pay taxes for years. NNN lease investments provide the same tax advantages as tax-free city bonds, without forcing investors to receive lower returns or open up investors until the big profits are earned. If an investor buys a bond in the secondary market and turns around and sells it for profit years later, he or she must pay a capital gains tax on profit, regardless of whether the bond is exempt from state income tax or not. This does not happen while investing in NNN because the fact that despite structured like bonds, they are still considered real estate investments and are therefore included in the same tax law which means that they can be depreciated in the same way as similar income generates commercial real estate. Taxes on the income they generate may be written off or suspended during the lifetime of the asset. The investor must of course pay the depreciation back when he sells, but this can also be circumvented by generating a 1031 Starker exchange and trading to other similar properties. The investment leased by NNN can also be financed, allowing investors to take advantage of their tenant loans and interest payments will also be written off. In addition to the many tax benefits, pensioners often choose NNN leases when planning their property or retirement because of the straight forward nature of the NNN lease investment. Retirees can achieve long-term, guaranteed, and fixed income with rent increases from simple products and their Beneficiaries will not be overwhelmed by the many complications associated with wealth management.
NNN properties outside the market
NNN properties outside the market are NNN properties that are available for sale, but are not marketed to the public. Many investors and developers prefer transactions outside the market for a variety of reasons, one of which is controlling the publicity of property availability, which can cause problems with other lease negotiations on other transactions. There are some professional commercial real estate brokers specializing in NNN properties outside the market.
References
Source of the article : Wikipedia
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