What is the triple net lease?
A triple net lease means an agreement in which a person takes a building on lease to bear all the expenses like taxes on buildings and maintenance charges. Water and electricity charges, charges on repair etc. In simple words, it is a type of lease where the tenant bears all the risks involved in the building till the period of the lease.
Many of you may think to give your building a triple net lease to reduce risk, but we all know that everything has its own pros and cons. So in this blog, we will discuss all the major pros and cons of the triple net lease investment in terms of landlord and tenant, which will definitely help you make a wise decision. So a lot to know, a lot to discuss and without wasting any time, let us begin.
Pros of triple net lease for a tenant
#1 Less rent cost
The rent of a triple net lease investment is relatively low compared to a standard apartment because all the costs, like real estate taxes, maintenance charges etc., are to be borne by the tenant, which reduces the cost and risk of the landlord. Due to which he happily gives his property on lease to the tenant with some extra discount after deducting all the expenses, which makes it a win-win situation for both of them.
A person can easily save up to 15-20% rent after adjusting all the expenses, influencing anyone to go for the triple net lease.
#2 Less interference of landlord
Generally, landlords do not interfere in triple lease agreements because all the costs are borne by the tenant, which makes him comfortable, and he does not bother with whatever you are doing with the building.
So if you are a person who does not want landlord interference for a long time, then you consider going for a triple lease agreement.
#3 Long term stability
Generally, lease agreements are for an extended period, like 20-30 years. So you do not need to spend time and money on changing your living place regularly and can easily live in a triple lease apartment.
Also, you can make changes accordingly as per your comfort if you already know that you will live in a place for a long time. This will make you feel that the place is like your home and you can easily live there for an extended part of your life.
#4 Can be transferred in some cases
The other significant benefit of this investment is transferability. If it is not explicitly mentioned in the terms and conditions of the contract, you can quickly transfer your triple lease investment to another person.
It gives you the flexibility of changing your place of accommodation which could be very beneficial if you need to move to another city in case of transfer or any other emergency.
Cons of triple net lease for a tenant
#1 Have to bear all cost
The most significant disadvantage of a triple lease investment for a tenant is its cost burden. A tenant has to bear the burden of all costs involved in triple net lease real estate investment like taxes, maintenance etc. Although, in most cases, these charges are nominal in case of a natural disaster or any other pandemic, the damages to property will be significant, which will increase the cost of insurance and repair and maintenance.
So avoid taking lease in place of high risk to earthquakes, tornados or any other natural calamity.
#2 Sometimes need to pay a lot in advance
Since the triple net lease is a long term contract, sometimes the landlord demands a lot of money as a security deposit and advance payments. It reaches 1-2 years of the lease in some cases, making it very difficult for tenants to take real estate on a triple net lease.
#3 Long term contract
Generally, the duration of a lease contract is considerable, like 20-30 years which makes it almost impossible for salaried employees to take an apartment on the lease. Although the lease can be transferred to another person, finding a tenant needs a lot of time and money.
Also, you cannot transfer the lease if it is sanctioned in the terms and conditions of the contract. So read the documents properly if you are planning to take a building on lease.
Pros of triple net lease investment for a landlord
#1 Long term passive income
Since the contract is for 10-20 years, the triple net lease investment is a great long term source of passive income for the landlord. Passive income simply means income with no work and lease will generate rental income without work.
#2 Less risk involved
Since all the costs need to be borne by the tenant, It reduces the landlord’s risk. Also, a landlord takes a good amount as a security deposit at the time of the lease, which makes its risk negligible and can easily earn while sleeping.
#3 Lease can be transferred anytime
If you are a landlord, you can transfer the lease anytime. It is very beneficial if you need a lump sum amount of lease in advance and removes the tenant’s rent.
For example, if the lease amount is $3000 per month for 25 years, you can quickly get all the lease amount in advance by selling your lease to another person for $6,00,000, which is $2,000 per month.
The above case is a win-win condition for both you and the new lease owner because it gives you the money in advance, and the new owner can earn a return of 50% in the next 25 years.
Cons of a triple lease investment for a long time
#1 Fixed rent for a long time
A lot of time, the rent is pre-decided for the upcoming years. So a landlord can lose a lot of money through other factors like the rate of inflation and real estate property prices.
So if you are a landlord, it is best to adjust the rent cost in the long term as the rate of inflation to avoid huge losses.
#2 Comparatively less income
Since a triple net lease agreement is for an extended period, the landlord needs to give property at less cost. Although this point ensures long term stable income but sacrifices the possible amount, you can earn from a short term rental agreement.
#3 Difficult to find a tenant
At last, it is tough for a landlord to find a tenant for a long term lease. Most people prefer to buy their own house by taking a bank loan instead of taking a triple net lease for a long time, and their decision is also justifiable.
So the landlord has to give a lot of discounts and perks to find a tenant who agrees to a long term triple net lease.
These are the all significant pros and cons in terms of both for a tenant and a landlord. Now you have to understand and adjust them properly to take your investment.
With this note, let us end this article, and as always, God Bless You All.
Frequently Asked Questions
How triple net lease is a good source of passive income?
Triple net lease contract is generally for long term and involves less risk that is why it is a good source of passive income.
Why it is difficult to find a triple net lease tenant?
It is difficult to find a tripe net lease tenant because most people prefer to buy their own house by taking a bank loan instead of taking a triple net lease for a long time, and their decision is also justifiable.
Why landlord does the landlord not disturb tenant in a triple-net lease contract?
Since all the cost is to be borne by the tenant, that is why the landlord does not interfere in a triple-net lease contract.