What Every Property Investor Should Know About Triple Net Lease Properties

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Triple net investments are great property investment options for people who want the benefit of a commercial property and the return on its investment without the demand of short-term lease cycles, dealing with tenant applications and other assorted busy-work tasks. A triple net investment is the purchase of a commercial property that has a solid, credit-worthy business tenant locked into a long-term lease. It's hands-off for the investor, but there are a few things you should consider first.

How to Evaluate a Triple Net Lease Investment

Before you put your money into just any commercial property in the search for the perfect triple net lease investment, you need to know the best approach to evaluating each property. Here's a look at what you need to think about when looking for triple net properties.

  1. Assess the Property - Start with a complete evaluation of the property at hand. Do a site visit so you can actually see what you might be purchasing. This lets you identify any particular risks, the neighborhood and the property itself. Then, have a thorough legal assessment completed to identify any easements, encroachments or restrictions on the property. These types of limitations can affect your ability to make any changes later, so if you want to be able to get the most out of your investment, make sure you're not bound by any.  
  2. Evaluate the Current Tenant - A significant part of the value of a triple net lease property is in the tenant. The tenant's credit-worthiness and long-term lease are big selling points under this approach. Since the tenant of a commercial building is a business, you need to be sure that the company isn't in financial turmoil or having other problems. The goal is to ensure that any tenant in the property has the current ability to meet financial demands and can be expected to retain that ability throughout the lease term. There are several things to look at during this process. For publicly traded companies, review their current credit rating and any trends over the last few years. If it's dropping, that's not a good sign. For private companies, end of year financial statements clearly show a company's fiscal performance as well as any projections for the upcoming year. Review several years of statements and look for signs of financial growth and meeting the goals set forth.

When you're confident that the building and the tenant are both worth the investment, a triple net lease investment is a great way to secure your financial future. After all, it's an all-but-guaranteed consistent payment through the life of the lease.