Given that triple-net leased assets have proven themselves to be resilient through the pandemic due to their known stability, investors are continuing to look for more triple-net leasing of assets in the future as we continue to experience unprecedented times.

Benefits of a Triple-Net Lease:

Triple-net leases set a known, typically long-term time where the tenant is responsible for all operating expenses, utilities, property taxes, maintenance, and repairs. This allows for management to limit their responsibilities while helping to better calculate future risk for the investor as well as avoid spiked billing insurance, especially in the State of Florida. Because triple-net leases typically are expected to be long-term, this eliminates concerns about vacancies and having to be preoccupied with finding a tenant for your property. Because of the nature of these agreements, triple-net leases tend to include provisions for future rental increases* throughout the lease-term. This is especially important right now as inflation becomes a growing issue in the economy and will continue to affect rent rates in the future.

Additionally, because of the requirements of triple-net leases, tenants tend to be more credit-worthy and are established businesses, easing the concern of future revenue from the tenant or concerns about needed to fill a vacancy in the future. Finally, because the tenants are managing and paying for most of the expenses, there are little to no landlord requirements, making it a relatively easy lease to maintain.

Because of the many benefits of triple-net leases, there is no wonder about how they were able to fend so well during the pandemic. However, as with anything in business, there are disadvantages to consider as an investor.

Disadvantages of a Triple-Net Lease: 

However, while triple-net leases are great opportunities for risk-averse investors, there are some additional considerations that one should have before signing. For example, there are established earning caps long term. This means that if an area’s value were to spike, it would limit your earning potential in times of property value growth.

Additionally, while these leases are long-term, there is no such thing as a guarantee. There is a risk of the tenant defaulting, which can result in major losses as you work to find another tenant. This can be avoided by thoroughly vetting future tenants and making sure they are established and credit worthy.

Overall, triple-net leases are good options for long-term, risk-averse investors. However, as with anything in real estate, there is always a level of risk. Having a good representative can protect you from the start. With over 15 years of experience, Eric Ligman can provide the best advantage as you begin to look for new tenants and consider different options for your property.

*However, if you’re looking to sign a triple-net lease as a tenant, it would be wise to include an escalation clause. This prevents the landlord from increasing costs at an unprecedented level. A 3 to 5 percent limit on an increase in charges from the previous year is a good cap to follow.