Triple Net Leased Commercial Properties

A Guide To Management-Free and Headache-Free Ownership

Are your real estate investments giving you a management headache?

Are you tired of tenant complaints and property destruction?  As a real estate investor, are your goals security and predictable, partially tax-sheltered income with an inflation hedge?  If so, then Commercial Triple Net Leased property is an excellent vehicle to create wealth through real estate.  This investment requires little or no management, has little risk, and produces monthly income from Lease payments. The Lease Agreement can also provide the opportunity for rent increases as a hedge against inflation.

How this does differ from owning other investment property?

Unlike owning duplexes, apartments, land or an office building, owning a commercial property under a Triple Net Lease Agreement to a business tenant is a passive investment — management and headache free!  In other real estate investments such as rental houses, mini-storage facilities, apartments and office buildings you as the property owner must perform the property management duties and pay all operating expenses.  You rent the property, collect the rents, refurbish the premises, pay the property taxes, insurance premiums, maintenance, accounting, legal, and other operating expenses.  Whereas, under a Triple Net Lease arrangement the Tenant agrees to perform all these functions for you as the owner of the property in return for a long-term Lease Agreement.

With the ownership of commercial property under a Triple Net Lease arrangement, the Tenant operates his business and pays all expenses (tax, insurance, maintenance) in that location for the duration of the Lease Agreement.  This type of real estate investment is passive, similar to owning stock in General Electric. And you receive the dividends or, in this case the rent payments, monthly.  Further, these types of commercial Tenants are positive business renters.  Unlike apartment renters who tend to abuse the property and then move out leaving the owner to refurbish and to find new renters, commercial Tenants have a vested business interest in seeing that a location is well maintained and attractive to customers.A

TRIPLE NET LEASED COMMERCIAL PROPERTY
Exchange Into Management-Free And Headache-Free Ownership: Are your real estate investments giving you a management headache? Are you tired of tenant complaints and property destruction? As a real estate investor, are your goals security, predictable partially tax-sheltered income with an inflation hedge, if so, then commercial triple-net lease property is an excellent vehicle to create wealth through real estate.

This real estate investment product requires little or no management, has little risk, and produces monthly income from lease payments. The lease agreement can also provide the opportunity for rent increases as a hedge against inflation.

What Is A Triple-Net Lease Property? Over the past several years, owning commercial property under a triple-net lease arrangement has emerged as a highly popular and effective strategy in real estate investing. A triple-net lease property is an investment where one owns real estate (land and building). Leases to a tenant for a 15-25 year term, who agrees to occupy the property, operate their business on the premises, pay rent and all the property operating expenses (taxes, maintenance, and insurance) with the opportunity for rent to increase over time as a hedge against inflation.

How Does This Differ From Owning Other Investment Property? Unlike owning duplexes, apartments, land, or an office building, owning a commercial property under a triple-net lease agreement to a business tenant is a passive investment (management and headache-free). In most real estate investments such as mini-storage facilities, apartments, and office buildings you as the property owner must perform property management duties, and pay operating expenses. You rent the property, collect the rents, refurbish the premises, pay the property taxes, insurance premiums, maintenance, accounting, legal, and other operating expenses. Whereas, under a triple-net lease arrangement the tenant agrees to perform all these functions for you as the owner of the property in return for a long-term lease agreement.

With a passive real estate investment, such as owning commercial property under a triple-net lease arrangement, the tenant operates its business in the location. As the owner of the property, you do not have to contend with monthly renters and operating expenses. This type of real estate investment is passive, similar to owning stock in Sears, you receive the dividends or, in this case, lease payments. Further, these types of commercial tenants are positive business renters. Unlike apartment renters who tend to abuse the property and then move out leaving the owner to refurbish and find new renters, commercial tenants have a vested business interest in seeing that a location is well maintained and attractive to customers. As a result, there is an economic incentive to enhance the owner’s property over time.

Hell or High Water Real Estate

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Common Conversation regarding having rental property:

Why don’t you get into the rental business?

I don’t want to deal with tenants!  Some don’t pay, then if something breaks you have to fix it, and of-course it would probably happen at the most in-opportune time, like when I’m on vacation

Triple Net Leases are so good, that the slang term for them for real estate professionals is a “Hell or High Water Lease”  Meaning coming hell or high water, the tenant is going to continue to pay for everything, and you are just going to sit back and collect your check every month!

Sometimes this slang-term also refers to a type of triple net lease which requires the tenant to rebuild after a casualty, regardless of the adequacy of insurance proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent absolutely net under all circumstances, equivalent to the obligations of a bond: hence the “hell-or-high water” moniker.

This is a brief summary of what the maintenance clause will look like in a triple net lease contract:

Z Company has signed a new 15 Year NN Lease with a projected Rent Commencement Date of 7/1/2007. The Lease includes 4, 5-Year options to extend with 10% rent increases in each. Z Company pays real estate taxes directly, is required to maintain general liability insurance additionally Z Company is required to reimburse Landlord for insurance policy premiums related to fire and property damage. Landlord shall be responsible for all HVAC repairs and replacements during the first year of the Lease; thereafter Z Company shall be responsible for all repairs and replacements up to $500 per occurrence and no more than $1,000 annually. Because the parking lot is concrete, Z Company is responsible for the repair and maintenance.

The maintenance on the HVAC is required because usually, you are acquiring a new building and their might be some problems with the initial installation.  The good thing is that whoever installed the HVAC will usually do the repairs for free.  Additionally, the HVAC unit will probably be under-warranty so this is not a significant risk at all!

When considering lease options as a landlord or tenant, the full terms of the lease should always be read before committing. In the case of a triple net lease, make sure that all the terms are clear and agreed upon by both parties. Consulting a lawyer who specializes in real estate is an excellent idea.

So go get’em, come hell or high water, I think Triple Net Leases are a good deal for any serious real estate investor, that wants to break into the inter-sanctum of commercial real estate.

Real Estate and Inflation

Many people are concerned about real estate and the downturn of the market. With so many people losing their homes, the economy is hurting. Even though property owners are seeing some rough times, the opposite could be said for investors who know what they are doing.

Investing during a slump in the economy can actually broaden an investor’s prospects and even bring in great, profitable returns.

If you are thinking about investing right now, this is a great time to do it, if you follow some strategic planning and envisioning.

Real estate is a business and should be treated as such. Even though there is a potential for a lot of success, there is some risk in purchasing during an economic slump.

Inflation can have serious effects on investors if the income and investment growth aren’t keeping pace with inflation. The good news is that there are some things that you can do to minimize the effects of inflation and how to come out on top.

Do you remember what a bag of groceries cost in the late 1970s? Compare that with what a bag of groceries will cost you today. Now imagine what you think it will cost in 2030. Interestingly enough, between 1977 and 2005, inflation devastated the purchasing power of the American dollar by almost two-thirds.

Looking at this grocery example helps you understand the effects of inflation. Over a period of time, mild inflation can cause some serious issues. Even at a mild inflation growth rate of 4% a 30-year-old earning $30,000 annually will need to be making $118,380 to enjoy his same lifestyle.

Most companies relatively keep up with inflation and compensate you for it. Parents of the 30-year-olds today were making about $9,000 a year when those 30-year-olds were born.

Inflation causes the most damage to retirement. If the 30-year-old we have been talking about wants to retire when he is 65, he will most likely live for another 20 years. His $118, 380 yearly income will need to at least double by the time that he is 85. And that is only figuring a 4% inflation increase.

So what can you do to minimize how inflation affects you? Investments are a great way to help reduce the effects, particularly a stable investment like property.

Real estate factors about 10% of the total output in U.S. economy. If real estate weakens, so will construction jobs and overall employment.

When there is a decline in real estate sales, the prices of homes go down, and essentially the value of homes. This then affects the loan industry.

You have probably heard that when there is a slump in the stock market that is the best time to buy. The same goes for real estate. As more and more properties are purchased, the market will eventually see a rise which will make your selling power and turn-around all the more stronger.Re