Sometimes, maintaining an investment property may become long-term suffering. After all, it does not only require paying operating expenses but also tracking the bills and ensuring all of them are timely paid. We often hear investors complaining about the effort they need to put in to maintain their investment properties. If you are also uncomfortable in managing your asset, there is a way you can get rid of property management. It’s called a NNN investment.
A NNN lease doesn’t include any landlord responsibilities.
A NNN or Triple Net Lease is a single-tenant arrangement that frees the landlord from management responsibilities by asking the tenant to pay all operating expenses along with the base rent. By signing a NNN lease agreement, the tenant commits to pay operating expenses that mainly include property taxes, insurance fees, and maintenance costs. So, even if the property roof requires repair, the tenant will pay for it and not the landlord. However, this is not always the case with Net leases. Not every net lease frees you entirely from the landlord’s responsibilities. There are other net leases that only require the tenant to pay one or two operating expenses and not all.
Types of Net Leases –
- Single Net Lease – Under this lease agreement, the tenant is only required to pay one operating expense – insurance fee or property tax – whereas, you as the landlord, will have to pay the other two operating expenses.
- Double Net Lease – Now you can guess, a double net lease includes two operating expenses. So, the tenant will pay the insurance fee and property tax, and you will look after the maintenance expenses.
Net leases are quite beneficial to save monthly income. Otherwise, the income is significantly reduced if landlords are burdened with operating expenses. There are some real estate firms that offer specialized lists of NNN properties. You can go through those NNN properties and choose the one that suits your budget. Moreover, you can also trade your current investment property for a NNN property using a 1031 exchange, and you won’t have to pay the capital gain tax either.
If you are looking for a shared-ownership investment structure, invest in DSTs.
Say, you don’t have a budget to buy a big investment property all alone. What will you do then? Well, instead of giving up on your dream, you can invest in a shared-ownership investment structure, like DST, and co-own an attractive investment property in the same budget. A DST or Delaware Statutory Trust is a private trust that owns, sells, and manages investment properties. In case you want a non-performing asset that you want to get rid of, you can trade it for a DST property using a DST 1031 exchange. DSTs usually have large investment properties in their portfolio that guarantee high returns.
However, irrespective of your decision, you must talk to your advisor before investing.