For real estate investors, triple net leases offer a great way to reduce the burdens of managing investment properties. There are many different types of leases, each with its own benefits and drawbacks. When renting out investment properties, you should consider the benefits and also drawbacks of different lease types, including Triple N leases.
“Many real estate investors like to use triple N leases,” Rusty Tweed notes. “A triple net lease can mitigate many headaches. That said, before signing on the dotted line, you need to consider both the benefits and drawbacks of a triple N lease.”
So what makes triple N leases different, and why do many real estate investors prefer them? Rusty Tweed shares his knowledge.
Rusty Tweed What a Triple N Lease is and Why Landlords Prefer Them
For Rusty Tweed, triple net leases have been a boon for his own real estate investments. Triple net leases shift the burden of property taxes, insurance premiums, and many maintenance & repair costs from the landowner to the tenants. Tenants are typically responsible for utilities as well. For landlords, a Triple N lease reduces risks and can also make properties easier to manage. For example, with a triple N lease, the tenant may be responsible for hiring a cleanup crew to clean common areas and their leased space.
The landlord’s responsibility may vary from contract to contract. While tenants are responsible for many maintenance costs, the landlord may still be responsible for maintaining certain things. For example, with many triple N leases, landlords are still responsible for maintaining the roof and other parts of the structure, such as support beams. The landlord may also be responsible for maintaining parking lots and other exterior areas.
“Make sure you consider the exact language of the lease,” Rusty Tweed recommends, “because you may still be responsible for major costs. While triple net leases reduce risks, they don’t necessarily eliminate risks.”
The tenant still pays rent, of course. Often, Triple N leases are for long durations, say 10 years or more. You can write in provisions for rent increases.
Rusty Tweed Explains Triple Net Leases and 1031 Exchanges
Looking for a passive income opportunity and to avoid taxation headaches? Rusty Tweed notes that Triple N leases often make great investments because they’re typically easier to manage.
Through a 1031 exchange, landlords can exchange a like-kind property (meaning both properties are used for similar functions) for another without being taxed. If you own a storefront downtown, for example, you might use a 1031 exchange to trade this property for retail space currently contracted under a triple net lease in a strip mall outside of town. If you do so, you won’t have to pay federal capital gain taxes.
Rusty Tweed Why Renters Sign Triple N Leases
Why do tenants sign net leases? Frequently, the tenant enjoys lower rent since they are assuming the costs that would otherwise be paid by the landlord. Additionally, a longer lease provides stability for the tenant. Many businesses need to invest in their properties, installing equipment, setting up displays or amenities for customers, so on and so forth. Long lease terms provide stability and reduce risks for businesses.
Which lease is right for you? Whether you’re a potential tenant or landlord, it’s smart to discuss your options with real estate experts, such as Rusty Tweed. There are a lot of factors to consider and also some potential pitfalls if you’re not careful.
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.