This article was written by our Vice President of Administration – Emily Cusmano. Please click here to learn more about Emily and the rest of the 3 Properties team.
My father is a 75 year old residential real estate owner and landlord. Every week or so he calls me to vent about the hassles of keeping his properties in good shape and his tenants happy. More than a couple times, I have been awakened at night to help with an emergency situation at one of his rentals either to unclog a drain, blow a roof or once, the most memorable, to get a fallen oak tree removed and his rental home repaired from the damage caused.
I often explain to him the benefits of selling off his residential properties and using the funds to invest in triple net lease assets.
In the commercial real estate world, an asset tied to a triple net lease is a passive investment where the tenant is responsible for paying taxes, insurance, and maintenance costs – the three nets – in addition to rent. Because of this, the landlord is often free from the many responsibilities typically encountered in other classes of real estate. Of course, just as in residential real estate, asset management firms are available to assist with ownership should that be desired.
A typical triple net lease property (NNN for short) is the familiar Walgreens on your local corner lot. This is an example of a single-tenant deal where the landlord owns the building and rents it to Walgreens as the tenant. Walgreens is then tied to a lease, which for this particular investment grade credit tenant, is usually 25 years long with a high initial rental rate and therefore no escalations. Walgreens, along with paying their monthly rent, is also responsible for taxes, insurance, and maintenance fees such as repaving the parking lot or replacing the roof during its tenancy.
While there is nothing wrong with residential real estate investments, or any other type for that matter, a passive alternative that should be carefully considered is a triple net lease asset – especially if you want to trade in some of your time tending to tenants for a much needed full nights sleep.