At first glance, triple-net (NNN)-leased properties are a perfect investment solution for those less experienced in or knowledgeable about commercial real estate — the tenant pays for nearly everything and does nearly all the work. And for many landlords, these investments provide an alternative to bonds — a stable, passive income that allows owners to diversify their investments without the responsibilities of leasing and property management.
These buyers are diverse — from relative newcomers dipping a toe into commercial real estate, to real estate investment trusts that specialize in the sector, to high-net-worth individuals and families who seek stability for estate planning or steady income while they focus on other investments.
But, as always in real estate, a lot is going on behind the scenes in this very specialized category. Those looking to invest in NNN still have homework to do to find the right category and then the right property for their investment needs. Investors should carefully examine the various real estate sectors that participate in this investment arena, and the current and future trends in each.
They also should be analyzing general business and more specific real estate trends, including interest rates, cap rates and other economic headwinds and tailwinds; new real estate categories entering a sector that had been dominated by retail and restaurant properties; challenges facing individual retail and restaurant users; what could be an ongoing trend toward shorter lease terms; and perhaps most important of all, strategies to maximize returns and minimize tax obligations when it’s time to exit the investment.
The smart investor looking to add real estate to their portfolios should look to NNN investments — but they must also be aware of the risks as well as the opportunities in what appears to be easy money.
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