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Why Do A NNN Lease? [Landlords and Tenants] - YouTube
Channel: Tyler Cauble
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in the world of commercial real estate
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the lease agreement
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is vital to making sure everyone knows
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who is responsible for what
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leases can be structured in any way the
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landlord and tenant agree on
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so why do so many choose to write things
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out the exact same way
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while part of it may be familiarity with
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the terms from past experience
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there are some serious advantages for
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both the tenant and the landlord for
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choosing to go
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triple net let's take a look at these
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types of leases to see why they are so
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popular
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so who pays for what in a triple net
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lease well in a triple net lease the
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three nets
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always come from the exact same three
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expenses property taxes
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building insurance and common area
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maintenance or cam for short
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these are passed directly onto the
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tenant and what is known as a
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pass-through or reimbursable expense
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according to their usage of the property
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now you may be thinking
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so all i have to do is collect the
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written check and be
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done sweet but unfortunately there is a
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little more to it than that
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note that these expenses are reimbursed
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meaning the landlord is still the one
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being initially billed for the property
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taxes building insurance and property
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maintenance
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here's a simple example of how this
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might play out let's say you own
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a retail property and the toilet goes
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out first
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the tenant will call the property
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manager and let them know what happened
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the property manager will get someone to
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fix it and then send you
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the landlord the bill at the end of the
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month you'll take your tenant's base
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rent and on whatever the cost to fix the
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toilet was
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and send that number to the tenant as
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their rent for the month when you get
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their check
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you'll pay the bill from your property
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manager and pocket the base rep
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property taxes and insurance are passed
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on the same way
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the only difference being where the
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bills are coming from because each of
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these expenses flows directly to the
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tenant as the landlord you get to keep
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the same amount just the base rate
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every month regardless of what happens
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you may already be starting to see why a
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landlord would like this arrangement so
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let's head there next
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the landlord's perspective let's say you
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own a building and there is a
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major hail storm coming to your area
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would you rather be
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up all night worrying about potential
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property damage and your insurance
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premium going up or sleep soundly
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knowing that everything would be taken
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care of
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most of us i'm sure would prefer the
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latter this peace of mind or stability
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is what a triple net lease
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offers the landlord a triple net lease
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combined with a solid property
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management team
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takes away nearly all of the stress of
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property ownership
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freeing up your time and letting you
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focus on finding those new opportunities
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instead of worrying about fluctuations
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and property expenses the protection of
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a triple net lease can help out in
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other areas as well lenders love to see
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stable
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recurring income allowing you to get
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lower credit rates on projects where
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your personal credit profile is key
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if you're retired you now know exactly
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what your monthly budget is or if you're
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saving for the down payment on a new
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property you now know the exact
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timeline having consistency in your cash
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flow just makes things simpler
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now for the tenant's perspective as a
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tenant the cheaper your rent is the more
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money you can funnel back into your
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business
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in a triple net lease any reduction in
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expenses comes back to you
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directly in the form of a lower addition
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to your base rent
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this means that your personal decisions
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from turning off the lights when you go
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home
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to picking out what landscaping you want
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all have a chance to save money for you
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and your business this opportunity to
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lower your monthly cost
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is what makes triple net leases so
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attractive to tenants
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it can also provide some protection if
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you're renting from a landlord who
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probably doesn't have the best
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reputation in a full service gross lease
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not only would you have to pay a higher
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rate
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every month but also the landlord would
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get to pocket
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any difference between your payment and
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their actual maintenance costs
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this means there's a chance you might
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end up paying more money
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for worse service than if you had signed
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a triple net lease instead
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so should you do a triple net lease in
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commercial real estate as in most other
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finance related industries
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the greater the risk the greater the
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reward in a triple net lease the
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landlord gives up the
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chance of a reward in return for greater
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stability in their monthly cash flows
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the tenant takes on the risk but also
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inherits the opportunity for reward if
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they can find ways to cut
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costs or run things more efficiently
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whether or not this type of leasing
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arrangement will work for you
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depends on how comfortable you are with
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taking on risk and your personal
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strategy towards real estate investment
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in any case
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make sure that you're talking through
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items piece by piece through the leasing
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process as what will work best
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will change depending on the specific
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circumstances and the property
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okay so now that we've covered why you
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may or may not want to do a triple net
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lease
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check out this video here where we're
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covering the pros and cons of triple net
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leases
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i'll see you there
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