If you are a real estate investor looking for a relatively low maintenance opportunity, a triple net lease might be the right solution. So, what does a landlord pay in a triple net lease?
We’ll explore the finer points of a triple net lease. But if you are a real estate investor that is diving into these opportunities, it is critical that you review our guide to the 9 most expensive mistakes that you can make. You’ll want to avoid these costly mistakes as you build your investment portfolio. Learn more in our free guide.
Ready to learn more about triple net leases? Here’s what you need to know.
What is a triple net lease?
First, let’s define what a triple net lease is.
In a normal lease, the landlord is typically responsible for the real estate taxes, maintenance, and insurance of the property. As the tenant, you would simply pay your rent on time and call the landlord if anything goes wrong. With a normal lease, most landlords would come out to fix the issue right away at no additional cost to you.
In a triple net lease, the tenant is made responsible for the real estate taxes, maintenance, and insurance of the property. That means no calling the landlord for a leaky faucet.
Beyond these costs, the tenant will also be required to pay rent to the landlord.
So, what does a landlord pay in a triple net lease? The exact details will vary. But generally, the landlord will cover the mortgage, additional insurance, and major exterior repairs to the building.
As you explore your triple net lease options, it is important to realize that the specifics of any triple net lease will likely vary slightly. With that, you should carefully review any triple net lease before signing on the dotted line.
What is the meaning of NNN?
You may see the acronym NNN thrown around. NNN stands for triple net lease. If you run into this three-letter acronym in the future, you’ll know exactly what it means.
How do you calculate a triple net lease?
As the landlord, you can make a determination on the calculator for a triple net lease based on your own experience. But here’s how to calculate a triple net lease:
First, determine the yearly property taxes and insurance costs for the rented space. If there is more than one use in the building, divide the amount of the building total by the rental square footage.
If there are any common areas, determine the cost of maintaining any common areas of the property. Add the yearly property taxes, insurance costs, and cost of maintaining the common areas together. Then divide that number by 12. At this point, you’ve arrived at the monthly cost of the property.
Next, you can add to the monthly rental rate for the tenant’s area of the building. You’ve arrived at the appropriate monthly rate for the tenant.
Examples of triple net properties
Triple net lease properties are not the typical residential rental property. But they are more common than you might think. Here are some examples of property types that often have triple net leases:
- Single-user industrial facilities
- Office buildings
- Bank buildings
- Restaurants
- Shopping malls
Of course, this is not an exhaustive list. But this should give you an idea of where triple net lease properties ownership opportunities might be available.
Your questions about triple net leases answers
Still have questions about triple net leases? We’ve got you covered with these FAQs.
What does a landlord pay for in a triple net lease?
The landlord usually doesn’t pay the property taxes or insurance for the tenant. However, the landlord might have to pay a mortgage on the property or opt for additional insurance.
The exact costs for the landlord will depend on the unique lease.
What is a triple net lease in commercial leasing?
A triple net lease in commercial leasing is when the tenant agrees to pay all of the expenses for the property. These expenses will include the property taxes, insurance for the building, and maintenance.
The extent of the maintenance required for the tenant will depend on the exact details in your individual lease.
What is included/not included in a triple net lease?
As a tenant, a triple net lease doesn’t include property taxes or insurance for the building. Instead, you will be required to fund these expenses as the tenant. Additionally, regular maintenance is not included for the tenant. As a tenant in a triple net lease, you should set aside funds for the maintenance and repair of the property along the way.
Are triple net leases a good investment?
As with most investment decisions, a triple net lease might be a good idea based on your situation. As a tenant, you might want to consider a triple net lease because of the promise of lower base rent. Since you are taking on more responsibility for the property by covering the property taxes and maintenance, the landlord will likely be inclined to provide a lower base rent.
As the landlord, a triple net lease can provide a steady stream of income with minimal effort on your part. Although you’ll have to keep up with the mortgage, you won’t have to deal with regular maintenance or other issues with the property. The convenience of this could make it worth the deal.
Of course, there are downsides for both parties. As the landlord, you might pass on a more lucrative tenant opportunity. As the tenant, you shoulder more financial responsibility for the property. But it can be the right choice in some situations.
The bottom line
A triple net lease can be a good opportunity for a real estate investor to create a low maintenance source of cash flow. However, you should weigh the pros and cons before moving forward.
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