Triple Net Leases: A Low-Maintenance Way to Invest in CRE

Are you new to the CRE investment game? Are you looking for a hands-off opportunity that allows you to collect returns without worrying about daily operations?

If you answered yes to either of those questions, a triple net lease could be the right option for your portfolio.

This type of commercial lease is popular among investors and lessors who are just dipping their toe into the CRE waters because it’s a low-risk venture.

What is a Triple Net Lease?

It’s a lease agreement that outlines a tenant’s financial obligations, including property taxes, building insurance and maintenance costs. A triple net lease for commercial real estate places more responsibility on your tenants, so you don’t have to worry about paying those monthly expenses.

How Triple Net Leases Work

The Investor’s Role

You still collect rent from your tenants, but they handle the day-to-day upkeep of the property. That includes cleaning, repairs and landscaping. Your tenants can pay utility bills directly, or you may cover the costs and bill them afterward.

As a landlord or property owner, you might still be responsible for structural repairs to the roof, foundation and load-bearing walls. It all depends on what’s outlined in the lease, so it’s crucial to use clear, intentional language.

Typical Triple Net Lease Tenants

A thorough tenant screening process is a must if you’re using a triple net lease. A business’s ability to pay rent and monthly expenses on time reflects its dependability. That’s why a credit check is crucial; it helps you evaluate the likelihood that a tenant will default on payments or file for bankruptcy.

The following types of tenants are likely to use triple net leases:

National retailers: Big box stores and other large retail tenants typically look for long-term leases that allow them to customize their space as necessary. They’re reliable renters due to their established business models.

Restaurant chains: A property that’s located in an area with good visibility is ideal for restaurants looking to attract foot traffic. Whether you’re working with a fast-food chain or an independent company, you can rely on restaurant tenants to adhere to a triple net lease because they won’t want to risk losing that site.

Pharmacies: Drugstores tend to have strong credit history and balance sheets, which reflect their ability to honor long-term lease obligations.

Financial institutions: Because defaulting on a lease or closing a branch could reflect poorly on a financial institution’s reputation, these tenants have a vested interest in maintaining their lease and paying on time.

Why Triple Net Properties Are Appealing to New Investors

Triple net leases often only have one or two tenants, making it easier to manage screening and brokerage. And because those businesses are responsible for their own property taxes and utility costs, you can take your returns and invest them in other parts of your portfolio.

You can also benefit from:

• Predictable, long-term income as net leases often run for 10 years or longer
• An easier point of entry since tenants handle most operating costs
• 1031 exchanges if you’re looking to move sale proceeds to a new property

What to Watch Out for Before You Invest

Tenant default: If you only have one tenant at your property, your entire income depends on their ability to pay. That’s why you need to carefully review a business’s financial health, performance history and operational projections to determine its reliability.

Vacancy rates: Evaluate the property’s leasing track record and vacancy trends for specific businesses and industries. That information will help you understand potential tenant turnover rates.

Location: A property’s location will influence a tenant’s likelihood of staying as well as the resale value if you decide to liquidate the asset. Pay attention to factors like visibility, neighborhood demographics and the growth or decline of surrounding businesses to assess the viability of a site.

Broker experience: Working with a broker who understands the nuances of triple net leases can help you navigate the process of evaluating tenant potential and outlining contract language.

Explore Triple Net Leasing Options with DRK and Company

When it comes to investing in CRE in Columbus, working with the experts is essential. DRK and Company employs a team of experienced brokers and agents who know the market inside out. We live and work in the region, so we understand how the economy works, which industries are thriving and how those factors influence real estate trends. Learn about our services and contact us to schedule a consultation.