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.

I hope you know by now, at University Partners, we put our money where are mouth is.  Meaning that we not only fully believe what we teach, we are actually doing it!

There are a ton of market opportunities in the real estate markets that we focus on.  However, we always are wanting to keep the pipeline full.  So, I am actually planning on making a trip to Canada in August and a trip to Japan and Korea in September.  Don’t worry I am also making a trip to both, Florida and California in October, to see if I need to pull the trigger and buy properties in these areas or keep being patient and opportunistic.

International Real Estate Investing is really a whole different animal.  To be honest, I don’t have that much experience with it.  However, I know two very important things.   You can translate your education in Triple Net Lease Commercial Real Estate Investing easily from the United States into any country.  I also know that there are plenty of opportunities due to globalization, albeit plenty of risks due to different real estate laws and different funding procedures.

Tags: International Commercial Real Estate Investing
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Formal Education vs. Self Education
August 13th, 2008

“Formal education will make you a living; self-education will make you a fortune.”
– Jim Rohn

We are surrounded by negative news from the t.v. and newspapers to family and friends.  However if you notice carefully there are also people that are doing quite well in this economy.  What is the difference?  The difference is between the formally educated and the self-educated.  Self educated people buy books, courses on the internet, and educate themselves on new investment ideas continually.  Formally educated people simply follow the “rules” that have been taught to them by teachers.

Here are some quotes from a recent NREI article (formally educated) and below the quotes are an explanation of how students of 3NetLease Profits (self-educated) are using the obvious problems to their advantage:

As the number of retail store closings continues to rise, landlords in the retail sector should brace for falling rents and declining occupancy. Property & Portfolio Research expects the final tally of store closings for the year to climb to more than 6,000, compared with 4,600 closings in 2007. As of mid-August, Boston-based PPR reports 5,300 closings.

Rents in Triple Net Leases rise over a 20-year term, therefore they don’t fall!  They also don’t have to worry about vacancy since they have a 20-year lease.

Landlords are becoming creative in dealing with lease terminations and restructuring leases so that they can maintain occupancy levels, according to Weiner. They are increasingly receptive to rent concessions and subleases.

Triple Net Lease investor students of ours aren’t having to negotiate with their occupants because they were educated before they signed a 20-year lease with a tennant.

These are just a couple of reasons why we feel using this course will lead to financial peace and prosperity for your company and your family.

“Education costs money, but then so does ignorance.”
– Sir Claus Moser

Triple-net-leased property sellers fall into three categories: investor/owners of leased properties; owner/users creating sale/leasebacks; and build-to-suit developers.

Investor/Owner. This type of seller presents a known entity for an investor’s analysis. The lease may be a true triple net but with a short remaining primary lease term, requiring either re-leasing or a series of short-term options. Investors can evaluate base rent and expense payment history and may have access to historical sales volumes to assist in determining the likelihood of future income.

Even after the prospective purchaser has analyzed and approved the lease, stipulate a review of an estoppel as a contingency of closing. Many sellers only are willing to involve a tenant during the final stages of the transaction, when they are assured of a sale. However consider what may happen if the estoppel comes back a week before closing and it differs in some way from what the seller’s documents had shown, or worse yet, presents an addendum granting a first right of refusal to purchase the property. Have a clear understanding as to when the seller is willing to submit the form, take note of the response time agreed to by the tenant in the lease, and build this into your contingency timeline.

Owner/User. The triple-net lease is well suited to sale/leasebacks as a way to transition the selling company from having absolute control over its surroundings to a situation where it merely is a “lessee.” Despite the emotional response that may be generated by the change in status, the sale/leaseback provides a number of advantages to both seller and buyer. The seller frees up capital, often 100 percent of the equity in the real estate, to expand or enhance the business. Since a business return, generally speaking, is higher than the typical 8 percent to 10 percent real estate return, the seller can benefit from the lower cost of investment capital.

Sellers and buyers also benefit by being able to customize a transaction, negotiating sale and lease terms that reflect unique landlord and tenant needs. Investors, for example, may agree to a higher purchase price in exchange for stipulated rent increases, rather than taking the risk of cost-of-living increases. They may trade a short initial term for a series of 10-year rather than five-year options. Tenants may feel comfortable with the obligations of a bond-type lease because they know the property.

One potential negative is the possibility that the seller overimproved the physical plant to enhance the company’s image and expects the buyer to cover overmarket amenities. This occurs most often with office buildings, but overimproved industrial facilities can be even more difficult to evaluate since the perception of overimprovement is related to the location as well as to the building itself.

Developer. From a logistics standpoint, developers are relatively straightforward, since they are professionals who will have the information you need readily available. As always, consider the seller’s motivations. The developer’s first objective is to build. With a lease in hand, the developer can get construction financing and create the product. The second objective is to sell at a profit, so it is necessary to build a return into the transaction. However, the developer’s costs may be relatively low because of economies of scale in creating a large amount of product. One of the benefits is that the lease is already drawn, and a meticulous analysis of the terms virtually can eliminate the chance of contractual surprises during your client’s ownership.

The main potential downside is that there is no performance history for the site. Second, even experienced developers sometimes give in to a strong tenant’s demands, even though the terms may be detrimental to the property’s investment value.

So you’re searching online for a sample triple net lease to find out what this type of lease is all about and maybe use the sample in your own investment plans. While an online search for a sample triple net lease may sound like a logical thing to do, there are two problems with this strategy. First of all samples of this type of lease is as rare as hen’s teeth on the Internet. Now that’s not really a huge problem. If you’re willing to do a little hunting around, you’ll eventually track down a few. And that’s when the problems arise. How do you know the samples you’ve found accurately represent what a triple net lease should contain? Moreover, how can you be sure that what’s in the sample lease covers everything you’ll need in your own lease agreement?

Unless you’re already an expert at dealing with the triple net lease (in which case, you probably wouldn’t be looking online for samples), there are a lot of elements in a sample lease that can trip you up. To avoid trouble in the future, the wording of financial obligations must be clear and precise.

Keep in mind that a triple net lease obliges the lessee to pay all costs associated with the building. That includes things like utility bills and building repairs, which can vary dramatically depending on how the property is being used. Now if you end up with a loop-hole in your lease that lets the lessee off the hook for, say, certain kinds of building repairs, can you imagine what could happen?  It’s not so bad if you’re the one leasing the property. If you’re the owner, though, you could be in for a major hit to your bank balance.

Needless to say, a lease document isn’t something you want to cut corners on. A single error could cost you thousands in various fees, not to mention the headaches and hassle that go along with trying to get misunderstandings ironed out and rewrite the lease so that all parties involved are satisfied with then new wording.

Quite often, it’s not particularly safe to depend on the Internet for getting correctly worded legal forms. There are too many people out there who build sites just for the money and have no concern for whether you get accurate lease forms or not. That fact that you could lose serious money because of an error they left in their sample form is of no concern to them.

That doesn’t mean there aren’t any good places where you can find a sample triple net lease online, though. If this is your goal, seek out high quality sites specifically designed to help commercial real estate investors, the business sites of a commercial real estate agencies, or the personal Web sites of a commercial real estate investors. All these places can be excellent sources of forms because the people behind the sites truly understand real estate investing and, because they’re trying to run a business online, it’s in their best interest to make sure you get a quality product.

A sample triple net lease is hard to find online and a good one is even hard to find. If you need a quality sample triple net lease, though, check the Web sites of commercial real estate agents and sites for real estate investors and you’ll be able to find a sample you can use.