Triple net leased properties have become an increasingly popular real estate investment option in recent years. Investors are attracted to the stable cash flows and hands-off management that triple net leases can provide. In this article, we will explore the key benefits of triple net investments and the most suitable property types to target in 2020.
Lower management responsibilities with triple net leases
One of the main appeals of triple net leased properties is the limited management responsibilities for landlords. With a triple net lease, the tenant is responsible for paying property taxes, insurance, and maintenance costs on top of rent. This transfers most operating expenses to the tenant, reducing headaches for landlords.
Consistent and predictable cash flows
Triple net leases often come with longer lease terms ranging from 10 to 25 years. This provides more reliable rental income for longer periods compared to other commercial properties. As rents tend to increase over time, triple net leases can generate steady cash flow growth over the lease duration.
High tenant retention rates
Tenants with triple net leases have less incentive to relocate since they would have to restart the expense pass-throughs in a new building. There are also high costs for tenants to customize and operate specialized properties like healthcare and industrial facilities. These factors lead to above-average tenant retention rates with triple net leases.
Ideal property types for triple net leasing
While most commercial property types are candidates for triple net leases, some sectors stand out for their creditworthy tenants and specialized real estate. Medical office buildings, drug stores, dollar stores, and distribution warehouses with corporate tenants can make especially attractive triple net investment opportunities.
In 2020, triple net leases remain a smart way for investors to gain exposure to commercial real estate. The hands-off management and predictable cash flows are ideal for investors who want stable passive income. Medical, retail, and industrial properties with long-term leases to investment grade tenants offer some of the best options for triple net investors this year.