TRIPLE NET Lease ???????

General Real Estate Investing
1

Any body knows what SINGLE net, DOUBLE net and TRIPLE net leases are.

I heard Gary Eldred the other day with Trump University seminar on internet talking about these and could not understand anything on above topic.

Sunny

2

The “NET” stands for which expenses are the tenant’s responsibility and which expenses are the landlord’s responsibilty. Typically, Single Net means the tenant is responsible for the operating expenses (janitor, maintenance, etc.) in the space. Double Net means the tenant is responsible for operating expenses and real estate taxes and property and liability insurance. Triple Net means the tenant is responsible for all expenses, including managment fees and capital improvements (new roofs, etc.) A lease where the landlord is responsible for all expenses is called a “Full Service Gross” lease. This is general rule of thumb because each market in America seems to have a slightly different take on what expenses are included.

3

Thanks for helping me understand this James,

Gary was talking about opportunities like taking some commercial properties in triple net lease with soe allready existing bigger tenant and make money on it.

Does that make any sense to you ?

Sunny

4

These may be good opportunity I have following comments.

  1. Expensive (usually the deal with good tenants is over million dollar).
  2. You need to make sure what they are asking per sq ft is the market as usually they charge you a lot.
  3. Need to put more down about 25%
  4. If the tenant leaves it may be difficult to find the comparable tenant as construction is very specific to tenant like TacoBell, Burger King. Gas station etc.
  5. Requires no management.
  6. Rate of return is low. One with AAA tenant now a days is about 5-6% (Walgreens).
  7. with AAA tenant should be able to get the financing easily but make sure that interest rate is less then the rate of return atleast 1.5% less.
  8. Some how I am still not comfortable buying it way from where I am but lot of people buy it anywhere they get the good deal as no management is required.
5

Why would a tenant pay to put a roof on or replace the A/C or pay the property tax on a building they are leasing?

6

Because they are leasing at very good rate. As the rate of return is usually lower than other property types, owner is some one who does not want to be hands on.

7

Also, these are usually LONG term tenants.

8

Also make sure that the leases are signed by the tenants corporation and guaranteed and not by subleasee.
if the tenants corporation has signed the lease and they deside to close the store down you can still colect the rent . if some one else bought it and try to resale it and the store closes then you got stock with big mortgage and no income.WATCH that big detail! :slight_smile:

9

To answer your question why would a company sign a triple net lease. It has to do with tax benefits for the company. A company like Walgreens or CVS, would rather have the building built and sold and then they lease it back.

Triple net properties are good for long term investors. The cap rates are low but they are a strong investment.

If the tenant is investment grade, you can get 90% LTV financing for triple net properties.

Regards,
Patti Porter