Friday, February 6, 2009

Triple Net Leases


First let me say that I'm an actual regular guy who isn't trying to sell you anything. I just want to share my experience with Triple Net Leases to the world in a way that everyone will be able to find and read, and from there make their own decisions.

Ok, so a buddy of mine was talking to me about investment opportunity and the subject of Triple Net Leases came up. I told him I was active in Triple Net Leases and that they are an excellent way to add to your monthly income as well as a great long-term investment.

So what is it?

Basically in a Triple Net Lease, you would purchase a property and then rent it out to someone else. So you're probably thinking, "how is a Triple Net Lease different than anything else", and "where am I going to get the money for this?" Those are great questions, and I will answer them as you continue to read.

Nitty Gritty (Details)

First I'll address the money. YES, you will need some investment capital. This isn't a get rich quick scheme. In fact, triple net leases do tend to have a lower yield than say the stock market. However, this is a VERY SAFE investment. So if you're looking to diversify and you want a safe, long-term yield, then a triple net lease is great. You can expect for any property you want to invest in to need at least 10% of the total price of the property - basically a down payment. However, before you do that, you'll need to find a property to invest in.

Ok, so there are companies (who's names I won't mention as I'm only doing this to get information out) who will help you find a property to purchase. In fact, after you purchase the property, you will actually do the Triple Net Lease with the company. Why would they lease the property from you? These companies are typically a real estate firm or property management firm. They lease the property from you and then sub-lease it to someone else for more money. So, while you will get a positive cash flow the company you lease to will also receive a positive cash flow. People will rent from these companies typically as a way to rebuild their credit or just build credit. The property management company can use their economies of scale to ensure the property is well taken care of and advertising for openings happen in a timely manner. It's a win-win for everyone involved.

So again, how is this different? Well, in a Triple Net Lease, ALL taxes, insurance, and maintenance are covered by the person/company leasing from you (this is why it's called a Triple Net Lease). This is a terrific advantage to you, the investor. You just invest your initial capital, and from there positive cash flow each month is guaranteed. And if you go with a property management company as who you lease to, the money is basically guaranteed. You can do a five or ten year lease with them, and let them worry about the property!

After the Lease

Ok, the lease is up, now what? Well the property is yours! You may still owe some on the mortgage, but the whole time you were in your lease someone else was making these payments for you, so you'll have a ton of equity! At this point you may want to sell the property, and again if you went with a real estate company as your property manager, they will be more than willing to help sell it (and take their cut!), or they many times will want to continue the lease. It's really up to you, I haven't had one of these finish the lease yet (I'm in 10 year terms on all of my properties), but I have seen a steady increase in the property values each year meaning that at the end of the terms I can sell them for a nice profit!

Concluding Thoughts

Again, this isn't for everyone. Many people get scared off because of the capital needed and the fact that it's real estate. They think they're going to need to put time and effort into this. Well I can say that every month I just get a check and don't worry about the properties at all. The company I lease to takes care of everything for me. And in a few years some of my properties will finish their leases, and that's when I know the fun can really begin for me, as I can sell them and make plenty of cash!

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