While owning an investment property is considered highly-profitable, managing the same property might turn into long-term suffering. Under normal circumstances, when you rent out your investment property to a tenant, you receive a flat rent on the property. Whereas, you need to take care of all operating expenses associated with the property. Expenses like utility bills, property tax, insurance fees, and maintenance costs (if any) soak your income. Plus, the amount of effort it requires to keep a watch on the bills and make sure that everything is paid timely is unfathomable. That’s why a lot of investors choose to sell their property due to the rising expenses. However, if you switch to a NNN lease, not only you will be able to keep your property, but you can also save operating expenses.

A NNN lease requires the tenant to cover the operating expenses.

Yes, you read that correctly. A NNN or Triple Net Lease is a single-tenant arrangement that requires the tenant to cover all operating expenses associated with the rented property, plus they also pay the rent. Isn’t it great? After all, as a landlord, you will keep receiving the rent and won’t have to spend a single penny on its maintenance. The operating expenses a tenant covers under a NNN lease includes insurance fee, property tax, and maintenance cost.

There are different varieties of net leases.

The reason why a Triple Net Lease is called so is that it requires the tenant to pay three operating expenses – insurance fees, property tax, and maintenance. Similarly, there are two other net leases, which require the tenant to pay one or two operating expenses.

  • Double Net Lease – Yes, you got it right. A double net lease requires the tenant to pay two operating expenses, which mostly include insurance fees and property tax. While, as the landlord, you’re required to look after the maintenance and repair.
  • Single Net Lease – It’s easy to guess. A single net lease requires the tenant to pay one operating expense, either insurance or property tax. On the other hand, you will be liable to pay for the other two expenses.

Depending upon your requirement and how much monetary relaxation you seek, you can choose any of the net leases.

Use a 1031 exchange to swap your investment property with a NNN property.

You may know, a 1031 exchange lets you swap investment properties. So, if you have an investment property leased under a gross lease, you can trade it for a NNN property and get rid of property management. The process is simple, and your Qualified Intermediary can see you through your exchange. The majority of NNN tenants are multinational companies, which means you don’t need to worry about payment defaults. You can find free NNN tenant listings on the websites of various real estate firms that facilitate 1031 exchange.

You can also invest in shared ownership structures like TICs and enjoy a regular flow of income.

Undoubtedly, owning an individual property requires more funds than owning the same property with a few other investors. A co-ownership structure reduces the cost of purchasing a property. Plus, it also ensures a regular flow of income. A TIC or Tenancy-In-Common investment works on the same module. A TIC can have up to 35 investors. Whether it’s profit or risk, everything gets equally divided among the investors in a TIC. A TIC investment qualifies for 1031 exchanges. You can learn more about TIC investment and 1031 exchange by consulting a TIC 1031 exchange advisor. You might need to do a bit of research before you find an experienced advisor for your help.

 

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