If you’ve ever thought about investing in triple net or nnn properties, they can be wonderful investments.
You enjoy little management responsibilities, instant cash flows, typically newer construction, quality tenants, and tenant paid operating expenses. All of these benefits allow you to see clearly into the nnn investment’s contribution to your financial future. But, sometimes the nnn property’s investment future can be risky if your tenant fails, the location isn’t strong, or you’ve misstated the property’s future value.
To avoid these pitfalls, I’ve highlighted the top 3 tips for investing in triple net or nnn properties below.
1. Understand the credit quality of the tenant. This means that they have the ability to pay the rent that they’ve agreed to over the term of the lease.
2. Location: are you buying good real estate? Make sure you understand the market, demand drivers, and the potential re-use of the site in the event that your nnn tenant goes dark or does not renew their lease at the end of the term.
3. What is your terminal market value? Don’t assume that the price you’re paying for the nnn deal is what you’ll sell it for in 5, 10, 15, or 20 years. Remember, most if not all triple net deals are valued based on the future cash flows, which means that the underlying value of the real estate may change (decline) over time as the term of the lease shortens.
By the way, where should we send your free 10 part email mini course? It’s 100% commercial real estate investing focused and you can get it here.