The details of your leases can significantly impact your success as a commercial real estate investor. NNN leases (also known as triple net) are one option that could be suitable for many investors and tenants. However, it isn’t the right option for everyone. This post will explain what NNN leases are and their pros and cons.

What are NNN Leases?

Under standard commercial lease agreements, the tenant pays the base rent to use and occupy the property. With an NNN lease, the tenant is responsible for more of the property’s operating expenses. Under this arrangement, the tenant will take on some or all of the property taxes, insurance, and maintenance costs. However, the contract will need line items to cover the specifics of these issues.

Now that you know what an NNN lease is, let’s consider some pros and cons.

Pros of NNN Leases

Longer Leases

NNN leases tend to be longer than other commercial leases. If tenants take on these responsibilities, they usually plan to stay on the property longer. A longer lease means reliable income and more stability for the property owner.

Predictable Operating Expenses

Signing tenants to NNN leases means it will be easier to predict operating expenses. You won’t have to worry as much about a sudden, costly maintenance issue or rising insurance costs. That will make it easier to predict the financial future of the investment.

Reduced Role in Management

This type of lease relieves the property owner of many management responsibilities. You won’t have to hire a maintenance staff or worry about the many other issues associated with property management. Along with removing that burden, the investor can focus more on other matters.

Cons of NNN Leases

Lower Rent Price

You can’t expect a tenant to take on these costs and responsibilities while charging the same rent price. That’s why NNN leases come with lower base rents than other lease agreements. However, not paying some or all operating expenses should compensate for this difference.

Finding and Negotiating With Lessees

NNN leases often have a narrower pool of lessees. It might take more work to find the right tenant. The additional expenses for the tenant may also complicate lease negotiations. Each one could be a point of leverage for the tenant.

Less Control

The property owner must cede some control to the tenant under an NNN lease. They will need the freedom to handle maintenance and repair issues. Tenants may also expect various other rights to alter or improve the property. However, the property owner can outline various restrictions and guidelines in the lease.

Do you need commercial real estate services in the Columbus, GA, area? Click here to contact the Cummings Commercial Team. Whether buying, selling, or leasing, we are your guides to the local CRE market. Reach out now to learn more.

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