When most investors are asked to pick a market to invest in, the real estate industry is usually favoured amongst others.
Why? Real estate properties accord investors the luxury of making positive cash flow most of the time. With this industry experiencing an exponential increase every year, it’s no surprise why investors are towing this path.
That said, the introduction of Triple Net properties in real estate has received quite a following by seasoned investors. For example, O’Reilly’s auto NNN properties are being bought because they’re considered to be reliable sources of passive income.
However, although NNN properties are gaining steady traction amongst several investors, the concept is still somewhat alien to new real estate investors. So, if you’re in this category and you’ve been finding it difficult to get a hold of the specifics involved in O’Reilly’s auto NNN, you aren’t alone.
In this article, we’ll be breaking things down into simpler bits. The subsequent paragraphs aim to give credence to the definition of NNN leases or properties, pros/cons attached, and steps to take before making an NNN property buy.
Are you interested in making positive cash flow regularly? Take that step today by perusing this article. Let’s take a peek into proceedings binding Triple Net properties.
What are Triple Net Properties?
Just before you start purchasing Triple Net lease properties, there’s a need to have a foundation on the concept “Triple Net lease.”
In Triple Net leases, every expense that’s associated with a property as long as the lease stands is shouldered by the tenant, including gross rent. A tenant becomes absolutely free from these surcharges when the lease agreement ends.
When we’re talking about property expenses, they include the following:
- Property taxes that are meant to be paid to the appropriate governmental body.
- Insurance charges to safeguard the property from unforeseen circumstances.
- Maintenance costs that might involve fixing of pipes, doors, and lots more.
Triple Net leases are usually undertaken by entities that major in office spaces, restaurants, convenient stores, and other business variations. While NNN leases can be short-term, it’s still within the landlord’s right to extend an agreement for periods up to 25 years.
That said, since financing NNN O’Reilly’s auto part properties might be expensive, there are lots of options that are efficient. The most notable? Crowdfunding.
This medium of financing is considered as cost-effective since you can diversify your real estate portfolio with as low as $500 dollars. Since there are multiple crowdfunding platforms, intending investors should note that minimum investment values might vary.
With NNN properties, while tenants are liable for all property related expenses or charges, the landlord’s name still reigns supreme with that property. Also, rents received by landlords are taxable.
Now that we’ve seen what a Triple Net Lease is, it’s time to see the numbers and take a look at how they work.
Triple Net Leases: How Do They Work?
So, how does a Triple Net lease work? While the specifics attached to O’Reilly’s auto NNN might seem difficult to grasp at first, you should be able to get a foundation as long as you’re aided with the right facts. In this subtopic, we aim at giving you those true facts as they come.
To understand Triple Net leases, you have to understand how a normal lease works first. Here, tenants have to pay rent, usually on a monthly basis. How’s rent calculated? The value of a property. It’s pretty straightforward.
Triple Net leases work in a similar fashion. Here, rent is fixed throughout the lease agreement. However, landlords can revise rent on grounds of inflation.
That said, revised rent can only witness an upsurge of 3%. The only way landlords can charge more is when a lease has expired and there’s an opening to re-lease.
Unlike normal leases, however, tenants are saddled with every expense accrued by that property. Landlords that have NNN properties are barred from participating in payments when a lease agreement is in place.
Triple Net properties have different variations. For instance, if a landlord has a “True” Triple Net lease in place, property damages that stem as a result of unforeseen circumstances are paid for by the tenant. Here, the tenant is responsible for everything that’s binding to that NNN property.
Another form of Triple Net leases is the “Ground Lease.” Unlike the regular NNN properties, this variation involves the leasing out lands to tenants.
Now, the tenant puts the land into good use by building a structure. However, after a ground lease expires, the structure built by the tenant automatically becomes the landlord’s.
NNN Property Investments: Factors to Consider When Choosing a Tenant
Just like every investment form, making profit is the ultimate goal. However, to bring this goal to fruition with NNN properties, you would have to select the right tenant.
Are you scared of getting the wrong tenant? If you are, make the following considerations. They include:
- Credit Ratings: If you’ve purchased an O’Reilly’s auto part NNN for sale, the next thing to consider is the credit score of the tenant before entering a lease agreement. Here, it’s advisable to go with tenants that have a credit score of over 700 points.
- Business Outlook: Always access the business outlook of the tenant. If they aren’t towing the lines of current market trends that’ll bolster their chances of becoming a force to reckon with, you might be better off seeking an alternative.
- Strong Financial Balance Sheet: Depending on the longevity of the lease agreement, taking a look at the company’s financials regularly is a must even when you’ve entered a lease agreement. This action keeps you abreast of whether or not they’ll be able to keep up with the lease.
Are NNN Properties Worth the Investment?
Just like every investment, NNN properties feature some upsides and downsides. However, it’s worth noting that the positives outweigh the negatives here, thereby making it a viable investment option.
To make your NNN property yield dividends in the long run, it’s important to make some considerations, including:
- NNN lease term
- Tenant quality
- Location and form of the property
- Return on investments
- Vacancy
- Capitalization rate
As an investor, the above factors are essential in determining whether investing in NNN properties is the right investment portfolio for your aspirations.
Major Takeaway
Before you key into NNN buildings like O’Reilly’s Auto NNN, it’s important to understand the basics of Triple Net leases as venturing into this investment form can be disastrous without a foundation.
That said, if you’re armed with the specifics, you can now expand your investment portfolio by purchasing NNN properties. However, it’s crucial that you compare and contrast properties using platforms like buynnnproperties.com to get a listing drafted out just for you!
