While commercial real estate is fraught with pitfalls if you don't know what you're doing, the best way to maximize income and minimize headaches is implementing the NNN lease. Also referred to as triple net lease, NNN leases will be the cornerstone of your commercial real estate career and vital if you're looking to make some serious money.
Now I'm not talking about late night infomercial stuff here. Commercial real estate investing takes an understanding of field, marketplace and some work. You will need capital to invest and like any investment there are risks involved. Unlike your plans to become a professional internet poker player, that meth lab you're working on in your garage or waiting for that check from the Nigerian prince you gave your bank account number to, commercial real estate investing can offer you a real chance at financial success and even liberation from the nine-to-five grind. By slowly building up a collection of commercial real estate properties you can create steady income as well as build equity without much work on your part.
Now before you run out and get a reality TV show and bad hairpiece to match "The Donald," let's start with some basics. Most of us have come across standard leases in our lives. We sign the lease and agree to pay X amount of rent for X amount of time. While you can opt to use this kind of mile toast lease for your commercial property you are not taking full advantage of your situation as an investor. Net leases are very popular amongst those who make their living through commercial real estate. Basically a net lease assigns some of the expenses associated with property ownership to the tenants.
There are many different kinds of leases. The single net lease assigns the real estate tax expense to the tenant. A double does the same but also tacks on the insurance costs. The triple net lease, or NNN lease, has the tenant cover the real estate taxes, insurance costs and maintenance fees in addition to the rent. There is an even more advantageous version of the NNN lease, called a bondable lease. A bondable lease is also called an absolute NNN lease or the very scary "hell or high water lease." In this version of the triple net lease the tenant is responsible for every possible real estate risk. Some provisions of this extreme triple net lease are that the tenant will rebuild after a catastrophic event.
So why would a tenant ever sign up for a deal like this? First of all they get lower rent. In a building that is up to snuff or brand new it's an especially good deal because the other costs are lower. Second, perhaps they "need" to be in that area. If you own the prime retail shopping center in the area tenants will be willing to meet your demands in order to create more business for them.
In short, the NNN lease is a great tool for commercial investors. It increases your income while decreasing your headaches. The tenants pay the mortgage and all expenses and you build in a little extra for the monthly cash flow.