NNN Property Loans

NNN Property Loans

Are you looking to secure the next high-reward real estate investment? May be you are looking for to get a commercial properties for lease? Then it is really important that you understand what you will require in order to finance triple net lease properties. This type of loan is also known as NNN financing. 

The lenders lease NNN real estate for sale only to single tenants who take responsibility of all additional expenses beyond utility payments and usual rent. These may also include additional expenses such as property taxes, building insurance and maintenance.

This type of real estate lease carries its own sets of benefits and shortcomings for the lessors and lessees. Let us explore what triple net/NNN leasing is? And what you will be getting in return for your efforts.

What Is a NNN Lease?

Before you start exploring NNN financing, it is important that you understand the concept of net lease. This a form of commercial real estate lease that requires tenants to take on the burden of all or some of maintenance costs and normal ownership of the building. In addition to rent, the tenant may pay some of the taxes, repair and maintenance costs, or other fees associated with the property.

For example, in a single net lease, the tenant pays property taxes. The tenant pays for property taxes and insurance with a double net lease. The triple net lease promisingly forwards maximum level of full or partial expenses on to the lessee.

An Overview of the Triple Net Lease

 

When a property owner offers a triple net commercial lease, the tenant takes on the additional responsibilities of: 

  • Property taxes

  • The cost of upkeep on the building

  • Any insurance

  • Regular rent payments. 

This can save the building owner a great deal of money because the lessee is responsible for the same level of expenses as the owner.

For the lessee, the rental costs are generally less than otherwise. Essentially, the building owners pass on their savings as reduced leasing costs. Such leases are also popular for business owners and operators for several reasons:

  • They tend to be for 10 or 15 years, with a controlled escalation of rent, which allows for long-term business operations.

  • They allow the tenant to make whatever repairs or upkeep are needed without reliance upon landlord cooperation.

 For investors, triple net real estate also offers  a range of perks including

  • Investors receive a stable income over a long-term agreement.

  • The property in question will presumably appreciate in value at little to no cost to the owner.

  • There are no worries regarding management issues.

  • There are no concerns about filling vacancies.

  • Building improvement costs are nil or close to it.

  • When a triple lease investment property is sold, capital can be rolled over into a 1031 exchange to save money to take advantage of tax deferment.

Low Risk, High Reward

If you are searching to buy a property deal that comes with the lowest risk but offers very high reward, it will be hard for any other type of financing to beat this type of lease property. The lease duration ranges from 10 to 15 years, or even 25. 

Hence such property is stable because it is governed by a single set of agreements. This means you don't have to negotiate raises in rent, building improvements, or other costs.

Hands-Off Management for a Single Renter

With this kind of lease deal, you will be dealing with only a single tenant. Therefore, the tenant will be taking on all of the responsibilities of maintaining the property. This means you can be a completely hands-off landlord. You will only step in only when there’s a major problem (such as the tenant failing to uphold their end of the agreement).

Steady Income with No Surprises

Through your lease property, you can enjoy a steady income with no surprises and relatively few headaches. After all, you do not need to concern yourself with paying out any property insurance or taxes. Plus, you can also rest your mind as you do not have to bear the costs of upkeep, repairs, and maintenance. Tenant will be taking care of all these affairs. 

In many cases it may sound like easy money. Of course, there's no such thing, but a NNN lease can feel that way once it starts moving along.

Pay for Financing and Mortgage

The ultimate goal when leasing any property is to ensure that it covers all your expense associated with the financing and loan of the real estate. That is why NNN Lease is just the right solution for this purpose. 

You can work with a reputable advisor specializing in triple net loans. This will give you access to numerous financing options to fund whatever purpose you may have. Additionally, your property’s lease agreement will instantly help you pay off the regular monthly expenses.

 

NNN Financing

Purchasing a commercial real estate/investment property of this type comes with specific financial requirements. If you are an investor, you must have a minimum accredited net worth of $1 million. This excludes up to $200,000 in income or $300,000 if you (as a filer) make a joint application or exclude the value of your primary home.

This can make it tricky for a smaller investor to take advantage of triple net lease properties. There are channels open to such smaller investors, including REITs, or real estate investment trusts, geared specifically toward NNN properties for sale. Here are a several other things you must look for when considering securing a loan for NNN properties up for sale.

Is the Tenant Non-Credit or Credit?

Does your tenant hold an investment-grade rating from Fitch, Moody's, Standard & Poor's, or is it a large publicly-traded company? If yes, you will have a low risk when you buy the property. However, you will also likely pay significantly more and get a far lower ROI when all is said and done.

On the other hand, a smaller independent business like a privately owned shop or restaurant is a higher risk because they are not as financially stable. However, you will often get the property at a lower price and get a greater return on your investment.

 

Stay on Top of Your Lease Agreements

When you buy net lease real estate, you're almost always getting a property already occupied by a tenant. The property will come with a lease agreement. Always Make sure that you fully understand how your lease agreement works.

You must look into the remaining lease term and any renewal options the tenant may have. Your loan will always have a direct link and depend on the terms of such lease.

Simply put, the lender will mostly offer a financing term on the NNN property for sale that is based on the remaining years. Suppose you have five years tenure left on the existing lease. In that case your loan term will most likely be of five years duration. 

On the other hand let us say, you have 10 years left on your leas. In that case, you can expect your loan duration to be of 10-year as well. Typically the lenders will offer loans with terms of 5, 7 or 10 years.

Know Your Lenders

Financing NNN properties for sale typically involves either a federally insured bank, credit union, or private lender. The best loan options usually come from federally insured institutions, offering the most competitive rates and the most favorable terms.

Private lenders are mostly more expensive. However, if you are facing a time crunch or looking for a temporary loan financing solution, a private bridge loan can give you the time you need to negotiate a long-term lease. In the meantime, you can continue to seek better financing options from a bank or credit union.

Know Your Tenants

In the end, it does not matter if  which lender you choose, the major factor to gain the loan will still be tied to tenant’s credit rating as much as it will be tied to your personal credit rating. The better you’re the credit rating of your tenants is, the better the terms of your lease will be. 

The main reason behind this is because your lender is well aware that you (as a landlord) will be fully or partially depending on the rent and fees paid by the tenant in order to pay your own financial obligations back to the lender. If the tenant has poor credit, it can make the sale a bad risk. Therefore, finding the best NNN tenants is the key. 

Is our triple net lease Options, a good investment?

Absolutely yes!  And we are always here to help our customers like you through this entire process.