1031 exchange

Let Your Tenant Pay Operating Expenses Of Your Investment Property

Management-free investment is what most investors seek. Nobody likes to get disturbed by midnight calls reminding them of dues on their property. A part of real estate investment is property management. However, as a property gets old, it requires maintenance on a regular basis, which requires a significant amount of money and time. 

Anyone looking for management-free investment will find NNN lease lucrative. Real estate investors crave for investment structures that not only offer a regular flow of income but also guarantee freedom from day-to-day management responsibilities. Paying property expenses from the profit may not please any investor. Under a standard lease, the investor generally pays property expenses from the rent received on the property. Therefore, a part of your income goes into managing the property. However, a triple net or NNN lease removes the burden of paying property bills from the investor’s shoulders. 

A triple net investment frees you from landlord responsibilities.

A triple net (NNN) lease is a single-tenant arrangement that requires the tenant to pay all operating expenses associated with the property that they have rented. In a NNN lease, the tenant is mainly responsible for paying three property expenses that include insurance fees, property taxes, and maintenance costs. Generally, in a gross lease, the tenant only pays the rent, which is then used by the investor or property owner to pay all operating expenses. However, a NNN lease lifts this burden from the investor’s shoulders by asking the tenant to cover the operating expenses associated with a property. NNN lease requires a long-term commitment, which could last for even more than ten years.

You can do a 1031 exchange on your current property and reinvest the proceeds in a net leased properties. 

Modified and other Net leases – 

Some net leases ask the tenant to pay one or a couple of property expenses. For example, a double net (NN) lease asks the tenant to pay two property expenses – insurance fee and property taxes – along with the base rent. Whereas, the investor is responsible for looking after the maintenance of the property.

On the other hand, a single net lease requires the tenant to pay any single property expense along with the base rent. Here, the tenant could either pay the insurance fee or property taxes, whereas, the investor takes care of the other two expenses. Then comes the Modified Net Lease. 

A modified Net lease is an amalgamation of a triple net lease and gross lease. Under a modified net lease, the maintenance cost of a property is split between the investor and the tenant. Whereas, the tenant is responsible for paying the other two expenses – insurance fee and property taxes. A modified net lease ensures that the tenant is not burdened with too many responsibilities. That’s why the majority of tenants prefer a modified net lease over other net leases.

Why modified net lease is the demand of the present hour?

Though a triple net lease is definitely more profitable for investors, a modified net lease takes care of the tenant’s interests as well. As a modified net lease reduces the burden from a tenant’s shoulders to some extent by splitting the maintenance expense between them and the investor, it attracts more tenants than any other net lease. However, that’s the only relief tenants get under a modified net lease. They still need to cover other operating expenses, such as insurance fees and property taxes.

Get access to premium off-market 1031 exchange properties list, DST properties, and NNN properties list in the property section of the website. 

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