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Walking to the mailbox and collecting a 4 to 5 figure check every month without the headaches of being a landlord almost sounds too good to be true.  Typically it is, unless you are the owner of a triple net lease.  A net, net, net lease, or commonly referred to as triple net lease in the industry, is a commercial real estate investment where the tenant is responsible for paying the taxes, insurance and maintenance of the property.  The property owners responsibility is paying the mortgage if there is one on the property.

Lets face it, for some people, being a landlord is very undesirable, but having the security and benefits of owning real estate is very desirable.  Triple net leases are able to offer the security of owning a tangible investment like real estate, without having to place tenants every year and worry about the headaches and time it takes to maintain a property.  Instead of dealing with individual people, tenants are corporate companies with credit ratings that allow owners to asses their level of risk and return.  The higher a company’s corporate credit rating, the lower the capitulation rate (cap rate) or annual return on your investment.  Typical cap rates for triple net lease range from 6% to 10%, although some triple net leases offer lower and higher cap rates.

Triple net leases are also unique in their duration.  Unlike a typical residential lease that lasts only 6 to 12 months, a triple net lease lasts typically 15 to 30 years.  This is a huge advantage for property owners who want consistency in the monthly payments and the security of not having to worry about the constant struggle of placing tenants.  Triple net leases also take into consideration inflation and typically include rent increase clauses through the life of the lease term.

Typical tenants for triple net leases are Walgreens, CVS, Social Security Administration, Arbys, Pizza Hut, 7eleven, Wells Fargo and many more.  These well recognized companies are willing to participate in triple net leases, because owning all of their business locations is not advantageous to their business model or growth.

The purchase prices of triple net leases have a wide range that can be as low as $500,000 and exceed $20,000,000.  Most purchasers of triple net leases put 50% down, or pay cash through a 1031 exchange or savings.  A triple net lease purchaser may be looking to have a healthy cash flow for retirement, or perhaps steady income after inheriting a large sum of money.

Lets take a look at a typical triple net lease for a buyer who has decided to 1031 exchange their money into a Walgreens (on a side note, Walgreens will typically only occupy corner locations unless confined to a large city) that is AAA rated with a cap rate of 7.25% at a purchase price of $5,500,000.

Purchase Price: $5,500,000
Cap Rate: 7.25%

To Calculate the annual and monthly payments, simply take the purchase price of $5,500,000 multiplied by 7.25% for the annual rental amount, which is $398,750 or $33,229.17 every month.  This is an ideal situation for an investor who is looking for a consistent return, plus likes owning real estate.  Some investors may be willing to purchase a triple net lease with a lower credit rating for a stronger cap rate in the 9%-10% range.

Owning a triple net property offers a long term lease with a corporately rated tenant, opposed to an individual tenant in residential real estate.  The major benefit of a triple net lease is the consistent monthly return without the hassles of being a landlord.  If you would like more information on triple net leases or the properties available, please sign up here, or call us at 312-265-8417.

Skyler Moore is a graduate from the University of Iowa with a degree in Finance. Skyler has helped start several real estate and finance websites including The Lucrative Investor. He has bought and sold millions of investment property, non-performing notes and financed distressed debt. He is currently writing a book about trust deed investing that will be coming out this fall.

Skyler Moore

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