Benefits of a Triple Net Lease
A triple net lease, also known as a NNN lease, is a commercial real estate lease structure in which the tenant pays rent as well as the three major expenses incurred by a property:
- Property tax
- Property maintenance
- Property insurance
Many investors choose to add triple net lease investments to their portfolio because of the significant benefits they offer when compared to other types of lease structures, such as gross percentage leases, single net, or double net leases.
Benefits for Investors
Triple net lease properties offer several benefits to investors. Generally, NNN leases offer lower risk than other investment properties and significant returns. Common net lease investments include dollar and discount stores, fast food franchises, auto stores, and pharmacies.
The major advantage of a triple net lease is that investors pass major expenses to tenants, meaning that operation costs remain low for landlords. Rent is typically lower on triple net lease investment properties, making it easier for investors to find tenants. Many times, landlords customize triple net lease agreements for specific tenants, allowing for greater flexibility and higher tenant retention.
Triple net leases also offer tax benefits to investors. As with other rental real estate properties, a triple net lease property is used by a number of asset-holders/sellers to avoid capital gains tax on their federal tax returns.
Benefits for Tenants
In addition to investors, tenants also benefit from triple net leases. Triple net leases usually offer low rent to tenants, with a slight increase after a specified number of years to adjust for inflation.
Another benefit to tenants is that, because they must pay maintenance fees and property insurance, landlords are motivated to keep a property maintained in order to attract new tenants.