A lease is triple net, nnn or simply "net" if it requires the tenant to pay the following costs:
- Insurance: full liability and property damage insurance
- Maintenance: all repair and preventive maintenance during the life of the lease
- Taxes: all state and local property taxes
In a triple net lease, the tenant is responsible for all the normal expenses of ownership, leaving the owner free of day-to-day management responsibility, and making the monthly rental payments "net" to the owner.
Triple net lease properties are usually single-tenant, industrial, or retail properties with long-term leases to corporate tenants. Blockbuster, Federal Express, Home Depot, Family Dollar and Wal-Mart all use triple net leases because a net lease provides the control of ownership without the up-front cash expenditure.
Properties leased to high grade corporate tenants such as these are ideal exchanges for investors who want safe investment property with secure, long-term income, free of day-to-day management responsibility.
Here are a few reasons why investment grade net lease properties are frequently utilized as secure 1031 exchange replacement properties:
- Steady income-stream guaranteed by an investment grade corporate tenant
- A long-term lease to a corporate tenant with high credit rating makes it easy to get a mortgage loan at favorable rates
- Equity can be refinanced out on a tax-free basis after the exchange is complete
- Triple net lease properties usually have high residual values because they are most often built for retailers who have researched them to find high density, middle income areas with great traffic patterns
- Net leased properties relieve owners from management headaches associated with other types of income-producing real estate
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