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Investing in a Net Lease Property: Why it Beats Traditional Investments

Investing in a net lease property is a smart financial move, as a large portion of the investment risk is eliminated. This article will detail what net lease properties are, the different types, and the benefits of investing in net lease properties over any other investments.

Credit: dimitrisvetsikas1969, Pixabay
Credit: dimitrisvetsikas1969, Pixabay

What Is a Net Lease Property?

A net lease property is one where the lessee pays some of the building management and operating costs in addition to the usual rent. This may include costs such as repairs, maintenance, insurance, and property taxes, depending on the lease type. According to Corporate Finance Institute, there are three categories of net leases:

  • Single Net Lease: The lessee pays rent plus property taxes.
  • Double Net Lease (NN): The lessee pays rent plus property taxes and insurance.
  • Triple Net Lease (NNN): The lessee pays rent plus property taxes, insurance, and other operating costs, such as maintenance and repairs

A net lease can also be structured so that a portion of the lessee’s rent is reduced in exchange for paying some of the management and operating costs of the building. Net lease agreements are most popular in commercial real estate agreements.

The companies who enter into these leases are usually well-known businesses that have been operating for many years, per First National Realty Partners. This further decreases risk, as these companies make reliable tenants that can be counted on to pay their rent without issue.

Benefits of Net Lease Property Investments

Rental properties in general typically make very good investments. They offer a range of benefits, such as a steady stream of passive income and potential capital gains due to appreciation, according to SF Gate. And if the property depreciates, the depreciation can actually be written off as a tax deduction.

Properties are physical investments and often less volatile than non-physical investments such as stocks, per Fortune Builders. There are numerous tax benefits to owning rental properties as well, which may help to offset taxable income.

There are some downsides to property investments, however, such unknown future costs and a lot of hands-on management. Investing in net lease properties eliminates much of these issues, making them an ideal investment choice. The two greatest benefits of investing in nnn properties are decreased risk and variability and minimal hands-on management.

Decreased Risk
Investments always involve some inherent risk. It is impossible to accurately predict the future. With real estate investments, a lot of the risk comes from variable costs, such as taxes, insurance, and repairs. What seems like a great investment today could lead to huge losses if, say, the tax rate spikes at the same time that the property needs a huge, unexpected repair.

Net lease properties provide all the benefits of investing in rental properties while decreasing the risk of unknowns. Single and double net leases are very advantageous as opposed to regular gross leases where the landlord takes on all of the extra costs.

Nnn property investments offer the greatest risk reduction. Maintenance and repairs are the biggest unknown and have the potential to cause the greatest investment losses. Passing these costs off to the lessee puts this unknown into their hands, freeing the landlord of almost all risk.

Less Management Hassle
Owning and leasing a commercial building typically requires a lot of hands-on management. From searching for the best insurance rates and paying the regularly scheduled costs to taking care of all of the repairs as they come up, it can be very time-consuming and stressful. It can be almost impossible for investors who own multiple buildings to take on all of this work without using a management company.

With nnn investments, the landlord is freed of all of these hassles as the tenant takes full responsibility for maintenance and repairs. Without the burden of hands-on management, it is more feasible for the landlord to rent out multiple buildings to increase revenue or to concentrate on other aspects of their business and there is no need to waste profits paying a management company.

Why Net Lease Properties Make the Best Investments

  1. 1.)Passive Income
    Net lease properties provide a steady stream of income with little or no hands-on management. There are no other investment options that offer a steady cash flow without large time and energy requirements.
  2. Expenditure Variability is Minimized
    The landlord knows upfront exactly what costs will be involved with managing an nnn property. There is no worry that rising costs or unexpected expenses will eat into profits. It is easy to calculate future returns, allowing for accurate business planning.
  3. Tax Benefits
    Rental property owners are able to claim many tax deductions that other property owners are not entitled to. This includes the interest on any mortgages or loans used to acquire the property, as well as annual depreciation, according to Pine Financial Group. Particularly for high-net worth investors, owning rental properties is a great way to lower taxable income.
  4. Reliable Tenants and Long Leases
    The majority of tenants who sign net lease agreements are strong companies that have reliable lease histories. They often sign leases that are very long in duration, perhaps even decades long, according to First National Realty Partners. This is a huge benefit as the landlord does not need to worry about finding new tenants frequently or having an empty rental space and the resulting loss of income.
  5. Ease of Finding Properties
    It is not difficult to find nnn properties for sale. In fact, a landlord could have their pick of many top name brand companies to lease to almost anywhere. Depending on the property, the tenant, and the time left in the lease, prices vary greatly so there are prices to fit many different budgets.

Final Thoughts
Net lease properties are hands-down the best investment opportunity. Nnn properties carry minimal risk and require very little hands-on work. If you are ready to begin investing in net lease properties, you can find an nnn for sale and begin collecting a steady income right away.

Sources:
Net Lease – Overview, How It Works, Types and Uses (corporatefinanceinstitute.com)
The Ultimate Guide to Net Lease Investments | FNRP (fnrpusa.com)
7 Tax Benefits Of Rental Property You Should Know About (pinefinancialgroup.com)
What Makes A Good Rental Property Investment? | FortuneBuilders
Is Rental Property a Good Investment? (sfgate.com)

This article is sponsored content. No endorsement by The Times of Israel of advertiser products or services, real or implied, is intended. The Times of Israel editorial team did not contribute to this article.

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