What You Want To See Before You Buy An NNN Property
by Luke Fields
Commercial properties that use NNN leases can be good investments if the tenants uphold their parts of the lease. For those looking to buy NNN properties and who are not used to dealing with them, there's a temptation to jump on whatever seems like a good deal. And with tenants paying for most of the costs, any NNN building can initially seem like a dream — you get the rent while the tenants worry about property taxes and repairs. But you do need to purchase carefully. If you're looking at NNN buildings for sale, look at these three issues at a minimum.
Long-Term Tenants — in Leases
A triple net or NNN building, in which the tenant pays rent, property taxes, and upkeep/operational costs, typically has one tenant. That tenant needs to be in a long-term lease when you buy. It's not enough that the tenant currently there is a long-term tenant who's been there several years, although that's a nice bonus; however, if the tenant is month to month or in the last couple of months of the lease, they could up and leave at any time. A tenant that's in a lease that has at least several months to go is a better bet because you won't suddenly be stuck with all of the costs for the building as it lies vacant. Remember, the point of buying an NNN property was so that you wouldn't have to deal with things like property taxes; the tenant was supposed to handle those. But if the tenant leaves, all of a sudden, you have to start tracking and paying those taxes until you can get another company in there.
An Average Cost for All Expenses
Even though you're not paying utilities, taxes, or other operational costs, you still want to have an idea of what they can be like in that specific building. That way, if you do have to search for another tenant, you can give them an idea of what they're in for. It also helps to know in case the current tenant reports something wrong, such as suddenly increased costs. If you know what the costs have been historically similar across tenants, you'll have a better idea of whether the increased costs are truly faulty (e.g., water leak, stolen electricity) or whether the tenant had just been really good about keeping costs low and became rather lax in that department.
Previous Rent Records for Current Tenants
Always make sure that the current tenant has a good rent record. Sometimes businesses have rough times, and that's been especially true over the past couple of years. But you want to be sure that there isn't a pattern of deliberately ignoring rent. That could create more problems for you in the long run.
Triple net leases can be great deals, and as the new owner, you'll want to be sure that you're getting your money's worth. With sensible investigation and help from a commercial real estate agent, you can find NNN properties for sale that fit the bill.
For more information about NNN leases for sale, contact a local real estate agent, or visit a website like Netleasefinder.com.
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About Me
Welcome to my website. My name is Larry Silva, and I want to talk a bit about private mortgage insurance. You may have heard the term PMI mentioned when you were in the process of purchasing real estate. When I first heard my lender talking about PMI, I was very confused. It was my realtor who sat me down and explained what private mortgage insurance was and when someone is required to purchase it. He told me that PMI is not lifelong insurance; it can be cancelled when the mortgage principal balance reaches a certain point. Once it was explained to me, private mortgage insurance was no longer a mystery or a confusing concept. I would like to pass on what I learned and hope that you find it to be of value.