What exactly do we mean when we talk about Commercial Real Estate NNN? It sounds pretty complicated but really it is not. The NNN signifies a triple net lease. All this means is that when someone leases a commercial property he or she may be obligated to consume some or even the entire extent of the property expenses typically covered by the property owner. This varies in accordance to the terms set up in the lease. In most cases the tenant will pay a standard rental fee but can also find themselves responsible for other expenses like utilities, maintenance, repairs, taxes and insurance.
You may be wondering why a property owner would set up a Commercial Real Estate NNN in the first place? These triple net leases are a great option for property owners to pay off their mortgages and in addition create a little cash flow in the process. For example, if a tenant leases a location that is part of a mini-mall. All the tenants can have triple net lease options. Depending on the size of their location they will pay a certain part of the expenses in addition to their rent. This works out great for the property owner who get to pay his property expenses, pay his monthly mortgage and make a few dollars as well.
When the property owner uses a Commercial Real Estate NNN he or she is actually making a equity investment. They finance the majority of the commercial cost and then use the triple net lease to pay it off, providing a positive cash flow and then when the loan is repaid they can sell the property for a profit once it has built its equity. As long as the property owner keeps good paying tenants it is a win, win situation.
The reason the triple net lease is referred to, as the NNN is for Net, Net, and Net. There are net leases and gross leases. With the net lease the property owner will only receive the positive cash flow money after the expenses have been paid. With a gross lease the property owner gets all the money up front and is responsible for paying the expenses and then keeps what is leftover. The Commercial Real Estate NNN is simply an option often utilized by the property owner to pass on the burden associated with commercial overhead to their tenants, secure their mortgage and come out on the positive end of the spectrum.
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