Triple Net Leases (NNN) are commercial real estate agreements in which the tenant takes responsibility for the expenses related to property taxes, building insurance, and operating expenses.
NNN agreements are commonly associated with retail properties, though offices and industries now embrace NNN leases. Landlords find triple net agreements on their property attractive since they get to transfer most of the risk of running the property to the tenant.
However, property owners on NNN buildings charge a lower base rent than other lease types. NNN leases are popular among large retail outlets such as pharmacies, medical clinics, malls, shopping centers, convenience stores, grocery stores, and restaurant chains.
Are NNN Pharmacy Investments Worth It?
Perhaps you came across this pharmacy for sale sign and are wondering whether it’s an investment worth your time or resources; here are reasons to consider triple net investing.
NNN Investments Carry Low-risk
NNN tenants are often investment-grade tenants who usually have little problems handling associated lease costs. Finding and buying a pharmacy for sale will present minimal investment risks.
Reliable Income Stream
Buying retail pharmacies for sale for NNN investing guarantees a consistent income stream. You get a fixed rent each month and do not have to worry about unforeseen expenses since the tenant will cover them. You also enjoy tax deductibles that come with owning commercial properties.
Low Landlord Responsibilities
The tenant is responsible for much of the daily running and maintenance of the property, so you have time to pursue other ventures while earning income from your investment.
Long-term Tenancy
NNN leases are typically long-term occupancy agreements. Tenants usually plan to stay for long, so there is a low turnover risk. A lease can last up to 20 years or more, so you don’t have to bother about lost income from vacancies between tenants.
Equity Buildup
Investing in NNN pharmacies provides a low-risk equity-building strategy. You can also put up the pharmacy for sale if the market peaks or when you need the equity for another investment.
You Can Invest in Any Location
Since you have minimal landlord duties as an NNN investor, you can find a pharmacy for sale in Florida, New York, Alaska, or anywhere else in the country.
How to Invest in NNN Pharmacies
If your research and find that investing in NNN pharmacy for sale works for you, here is a simple guide on how to go about your investment.
Choose Your Preferred ROI
The tenant type, location, age of the property, landlord duties, and lease contract affects how much returns you will be getting on your investment. The factors can lead to widely varying cap rates between two NNN pharmacies, even if they have the same tenants and guaranty. It would help to be specific on how much returns will be good enough for you before you buy a pharmacy business.
Discuss with an NNN Expert
You want to discuss with a real estate broker NNN advisor to learn what available NNN pharmacy is most suitable for you. It is also necessary to vet the skill and experience of the broker. An agent with NNN experience will guide you through the process and set you up for investment success.
Decide on Your Tenant and Lease Terms
Tenants come with different lease terms that can affect your bottom line in the long run. The type of pharmacy, number of locations, and tenant’s credit rating tell you the level of risk exposure you have.
You may see an investment opportunity with an attractive cap rate only to find the lease is about to expire. A leased backed by a corporation, for instance, carries less risk than one guaranteed by a single owner or franchisee who may not have the means to settle the rent if the location is not as successful as projected.
Talk to Prospective Lenders
It’s okay to make an all-cash payment towards your NNN pharmacy investment. Otherwise, it would help to consider your financing options early.
NNN properties are investable everywhere, so you may want to select a lender whose reach cuts across the length and breadth of the country. You can start with your local bank or speak with a mortgage broker to help you find suitable lenders.
Make an Offer
Your advisor will probably find more than one NNN pharmacy business for sale. At this point, you need to find a way to keep track since touring them in person may not be possible.
Using a spreadsheet, for instance, can help you organize the properties, giving you a clear picture of the merits and demerits of investing in each one. When you have picked a suitable property, your broker will write a letter of intent to acquire the property.
Evaluate the Property, Tenant, and Lease
If the property owners accept your offer, you must perform due diligence on the property, tenant, and lease terms. If you cannot to visit the property in person, you can contact a local inspector to help you evaluate the building and tenants and send a report. You may need your attorney to go through the document in reviewing the lease terms. The lease terms determine your income and ROI, so you want to make sure you know what it says.
Start Earning Income on Your Investment
The only thing you’ll be doing for the most part once you have acquired an NNN property is to wait for your monthly rental checks. Minimal landlord duties associated with NNN investing mean that you have little or nothing to do for the most part.
Drawbacks to NNN Investing
If you’re thinking about investing in commercial real estate, you may have come across the term NNN. But what does it mean, and is it a good investment? Here we’ll take a look at some of the drawbacks to this type of investment. Keep in mind that every deal is different, so always consult with a trusted advisor before making any decisions.
Earning Caps
There is a limit to how much you can earn as an NNN investor. The long-term nature of the lease agreements means that you have to wait till the lease expires before you increase the rent, even if property prices rise in that location.
Vacancy Risk
If a tenant defaults on their payment, you may incur losses with the period you are looking for new tenants to fill the vacancy.
Conclusion
NNN investing is an excellent real estate investment option for a specific kind of investor. If you want a low-risk way of creating consistent cash flow and building wealth without the graft involved in being a landlord, then triple net leases are for you. However, if you prefer to be involved in the daily management of your property as you grow your portfolio, you may want to look at other types of real estate leases.
