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

http://www.3netleaseprofits.com/blog/

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

What Are Some Advantages Of A Triple-Net Leased Property
There are several advantages. First, the monthly lease agreement provides a very predictable, long term income stream to the property owner. Second, since there are no property expenses (taxes, maintenance, or insurance) to be deducted, the income stream is not impacted by future increases in property operating expenses. The property owner (investor) can enjoy a rental income stream, without property management or property expenses.

Subject to the credit worthiness of the tenant and the terms and conditions of the lease agreement, the investor can enjoy a high degree of security and should expect to have additional rental income over time as the inflation hedge feature of the lease agreement comes into play.

Can a Triple-Net Leased Property Be Used To Complete A Real Estate Exchange? A triple-net leased property can be an excellent replacement property in completing a real estate exchange transaction. Many real estate investors dispose of their management intensive properties such as apartment buildings, duplexes, and office buildings, hoping to find management-free properties producing long term, predictable income. If you are thinking of disposing of your business or investment-held property, would like to “Pay No Capital Gains Tax” and reinvest into a management and headache free property, the purchase of a triple-net leased property through a real estate exchange, can be just what the doctor ordered.

Investing in real estate is a great way to make a lot of money. Commercial real estate on the other hand is even a better way of making money; however, it is important that you know what you are doing.

First of all, it is essential that careful planning is used to determine what you want as an investor. You will also need to use your skills and knowledge to attain those desires. Make sure that you also understand your weaknesses so that they don’t get in the way of your goals.

Not only is planning necessary, but also determination and patience. As an investor, you need to know what type of property you want to invest in. You should also consider the size and the location.

For you to make a lot of money you need to understand the local market and what is hot. The more you know about the latest trends, the more you will know about getting the right property and the right price.

Once you have chosen the property, it must be valued accurately. You will want to determine if the investment will give you enough return. You may want to consider different types of financing such as notes.

Investing in commercial properties can seem really scary. Many investors don’t even try to go into this market even though the returns are normally higher than those of home real estate investing. Ultimately, they just don’t want to take the risks.

The highest risk commercial real estate usually involves properties where there are many tenants. These could include a building that has more than one office or shop. On the upside, these kinds of properties have a lot of money attached to them; however, you will most likely have to deal with the tenants on a regular basis.

More than anything, as you go into commercial real estate investing, you need to be focused and be aware of all the aspects that are involved. You need to make sure that you pick apart all of the documents that relate to the property that are purchasing.

Anything to deal with leases, mortgages, notes, title policies, occupancy certificates, maintenance contracts, parking lot contracts, insurance policies, and tax information should be closely looked at.

You will want to hire an independent surveyor to determine the situation of the property and any equipment. It is also a good idea to hire an attorney to help you with the lease information, title, policies, taxes, licenses, rent roll, bill history, etc. Understand every little element.

You will also want to know about the tenants and if there have been any problems in the past. If you know any issues at hand, you will have a better chance of negotiating your price.

You can also find a firm that gives their assistance and goods to help your investment succeed if you don’t want to do it on your own.

Some Examples Of Commercial Triple-Net Leased Property
If you drive through the business district of any city or town you will see commercial triple-net lease properties: for example all the major restaurants such as; Burger King, Taco Bell, Kentucky Fried Chicken, Pizza Hut, the automotive after-market such as; Goodyear Tire, Pep Boys, Jiffy Lube, retail outlets such as; Toys R Us, K-Mart, and Home Depot to name a few. Most of the real property occupied by these companies are owned by real estate investors and leased to these companies under a triple-net lease arrangement.

Most people enter a job field because they are interested in making money. Investing in real estate is not much different. If you know how to invest, the real estate market can be a profitable business.

Before you jump into the fire, there are some things that you should know about investing. Just like any other kind of work, there is some education that goes along with it. There are several laws, methods, and different kinds of investments.

It is not that difficult to find local investment groups that meet on a weekly basis to learn about investing. They help each other learn about the necessities of investments.

Nationally, there are also experts you have seminars and training courses that can help you start the investment process.

When you consider real estate investing, there are several different kinds of properties to invest in. Some of them are realtor listings, homes for sale by owner, bank owned properties, auctions, tax sales, and commercial.

Realtor listings are homes that are listed by real estate agents who act for the home owner or seller.

Homes that are for sale by owner are homes that the owner wants to sell without any representation from a realtor.

Foreclosures are the main reason why banks own various properties. These homes are usually sold at a lower price because the bank would rather have you have the home while they loan you the money for it. You will find that many banked owned properties are in need of repair – this could be due to the fact that the homeowner didn’t have enough money to stay current with repairs.

Auction homes are homes put up for sale and put on for bid for a short period of time. The highest bidder after a certain date and time will be able to buy the home.

Tax sale homes are comparable to foreclosed homes; however, they are owned by the city instead of the bank. This is due to default of tax payments.

Commercial real state involves purchasing business property. There is a lot more responsibility that comes with owning this type of investment, but the returns are also a lot higher.

When you think about different ways of paying for the property that you want to invest in, there are many traditional ways of doing so. You can pay cash or get a mortgage.

There are additional creative ways of paying for your investment property. Some investors take over the monthly mortgage payments of the original owner. Or you could even do a rent-to-own option, or lease with option. This is where you pay a monthly rental payment for a specific length of time and then eventually buy the property.

No matter how you figure out your payment methods, investing in real estate is a money-making, low threatening business.

It is just essential that you know what you are doing.

As you purchase properties and then rent them out or flip them, you will be making a great income.

Hopefully by now you at least understand some of the basics of triple net lease investing.  If not – BUY THE COURSE.

Lately there has been a lot of discussion on green leases.  Essentially these are leases where the tenant is incentives in some form to operate the facility in a more environmental friendly way.  The structures vary but this could be in the form of using less water, less lights, etc.

Here is a more detailed example of how a green lease could add value to your triple net lease property:

Suppose an owner’s operating costs for his office building are $9.50 per square foot and assume energy costs are $2.00 of that, or about 20%. If the owner makes the building more energy efficient, reducing his operating costs by 40%, he will be saving .80 cents per square foot (.80 cents = 40% of $2.00). In a Net Lease arrangement (where the tenant pays for all electric/energy charges) the owner does not have an economic incentive to make these investments because the savings go to the tenant, as opposed to his bottom line. However, by shifting from a Net Lease structure to a modified “green Gross Lease” approach, where the tenant pays a rent that has certain expense items, such as water and electric, built in, the duty of responsibility for managing these costs can be shifted away from the tenant and back to the landlord, who reaps the benefits of his capital improvements and the efficiencies/savings they produce.

Indeed, from an owner’s perspective, by having the right type of green lease in place, the resulting efficiencies will produce value in both the short and long term. By capitalizing (or “capping”) the .80 cents of energy savings at a 11% cap rate (or expected return) you’ve created about $7.27 in additional value per square foot for your building. Do this with a 100,000 square foot building and that small improvement has added $727,000 of value to your property.

There are ways to integrate a green lease with a triple net lease that we will discuss in another blog post.

First off you should know I’m extremely biased.  My mom was a teacher and my step-dad was a professor.  I’m biased in that I think investing in education is the single biggest factor in upward economic mobility.  I have been very fortunate in my career and have sold a business and have some more businesses that have fairly regular monthly cash flow with me doing very minimal work.  This would not have been possible without constantly educating myself on all of the opportunities available.

Sometime I have invested in a course and only used the material once in the past five years.  However, that material has made the difference between me working for a company and me owning my own company.

This education is the difference between me asking for vacation days to now I vacation when I want to.  I’m not being arrogant.  I work hard.  The only difference is I work hard when I want to.

This is why I helped create this course.  You may decide after you finish this course on Triple Net Lease properties that you don’t want to be a part of this niche in commercial real estate.  But who knows, ten years from now you might.  Even then though, at least you can be educated.  Who knows maybe you will be a business owner and be involved with a commercial real estate owner that has a triple net lease.  The possibilities are endless.  The point is that YOU WILL BE EDUCATED after taking this course.