One thing that is constant in the real estate business is volatility because it is strongly linked with macroeconomic variables, and keeps on changing as a result. Therefore, if you wish to be an investor, you must always consider the current trends of the market because it will tell you whether it is the best time to invest in real estate. One of the most efficient ways of investing in real estate is by buying a property and then leasing it on a Triple net lease agreement.
You do not have to google that what is a triple net lease, and how it is different from other types of lease agreements because the answer is right here. In triple net lease agreements (NNN), tenants are partially or completely responsible for all the operating costs of a property along with paying the rent. NNN lease agreements are a favorite of the investors because they promise a consistent revenue stream without any added risk, which is unlike other lease agreements. However, some things need to be considered to gain clarity while drafting a triple net agreement with the future tenants, and we have discussed three such things here.
1. Maintenance responsibilities:
NNN leases are not set in stone in terms of what is expected from tenants and what is expected from landlords. For example, it is generally assumed that all the operating costs of maintaining a home always fall in the lap of tenants. It is true but it needs to be understood that such understandings are settled at the time of contract, and their comprehension is never automatic.
This is why NNN lease agreements vary from person to person because their nature is dictated by the terms discussed at the time of contract. Therefore, make sure that you settle the maintenance responsibilities at the time of the contract so that there are no misunderstandings later on. Typically, it is a common arrangement that tenants are responsible for regular upkeep expenses, while landlords take care of expenses related to structural repairs of the building.
2. Tax Responsibilities
NNN lease agreements outline tax obligations on both the parties involved in a contract, and normally all the property taxes are passed to the tenant agreed to a NNN lease agreement. But, it is not automatic and you must always make sure that there are no other taxes in the fine print that fall under your obligation without your knowledge. Otherwise, you may end up getting involved in a loss-making contract because there is a chance that your annual rental income will not even cover your tax obligations.
3. Monthly Rental Sum Agreements
As an owner of a rental property based on NNN lease agreements, you are going to make money via monthly rental sums paid by your tenants. Therefore, you have to settle on a monthly rental sum that is reasonable and suits your future investment plans. Usually, these rental sums remain fixed throughout the contract which helps you in estimating your yearly earnings. But, you can always negotiate throughout the contract period if you feel that the rental sum has to be adjusted due to an increase in property value.