HOW TO MAKE YOUR JOB OPTIONAL”

Masterclass on January 22!

 What if you could enjoy a doctor’s lifestyle without depending on your clinical paychecks?

HOW TO MAKE YOUR JOB OPTIONAL”

Masterclass on January 22!

 What if you could enjoy a doctor’s lifestyle without depending on your clinical paychecks?

Accelerating Wealth Is Now open!

Don’t miss out! Grab this golden opportunity to enroll in Accelerating Wealth.  Enrollment ends December 8th.

Days
Hours
Minutes
Seconds

Zero to Freedom is Now Open!

Don’t miss out! Grab this golden opportunity to enroll in Zero to Freedom. Enrollment ends January 30th. 

Days
Hours
Minutes
Seconds

Zero to Freedom Waitlist is Now Open!

Don’t miss out! Grab this golden opportunity to join the Spring 2024 Zero to Freedom waitlist. 

Understanding Triple Net Leases and Their Benefits

Summary: Are you familiar with the term “triple net lease”? In this arrangement, tenants not only pay rent but also shoulder real estate taxes, building insurance, and maintenance. By transferring more operational costs from landlords to tenants, it ensures landlords a steadier income stream and reduced responsibilities. This can sometimes significantly enhance your bottom line!

 

[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

 

A lease agreement is foundational to a rental relationship between the landlord and the tenant. However, not all leases are created equal. The terms can vary widely, depending on how expenses are divided between the two parties. Among the types of lease structures available, the triple net lease is particularly notable for its unique approach to cost allocation. Let’s dive into what a triple net lease is, how it compares to other types of net leases, and the benefits it offers.

What is a Triple Net Lease?

A triple net lease (often abbreviated as NNN lease) is a type of lease agreement where the tenant agrees to pay all real estate taxes, building insurance, and maintenance, in addition to rent. These three components represent the “triple” in a triple net lease. The idea is that the tenant essentially takes on many of the responsibilities that would, under most other lease types, fall on the landlord.

Other Types of Net Leases

To grasp the full spectrum of net leases, it’s essential to understand how they differ:

Single Net Lease (N Lease): In a single net lease, the tenant pays only one of the additional expenses – typically property taxes – on top of the base rent. The landlord handles the other costs, like insurance and maintenance.

Double Net Lease (NN Lease): Here, the tenant agrees to pay two of the additional expenses, commonly property taxes and building insurance. Maintenance is typically the responsibility of the landlord.

Each type of net lease essentially dictates a different distribution of expenses between the landlord and tenant. The triple net lease is the most landlord-friendly in this respect, as it pushes most of the operational costs onto the tenant.

Benefits of Triple Net Leases

For landlords, the triple net lease offers numerous benefits:

  1. Predictable Income Stream: With the tenant covering variable expenses like taxes, insurance, and maintenance, the landlord’s income from the property becomes more predictable and consistent.
  2. Reduced Operating Responsibilities: The landlord has fewer property-related responsibilities, which can be advantageous for those who may not be local or prefer a more hands-off approach.
  3. Potential for Higher Net Income: Since many of the traditional ownership expenses are transferred to the tenant, landlords might find that their net income is higher compared to other lease structures.
  4. Protection Against Variable Costs: If property taxes increase or an unexpected maintenance issue arises, the burden doesn’t fall on the landlord but on the tenant.
  5. Attractive for Long-Term Tenants: Tenants who anticipate long-term occupancy might prefer an NNN lease because they can have greater control over the property’s maintenance and upkeep.

However, it’s essential to note that while triple net leases can be very beneficial for landlords, they might be less appealing for some tenants. Tenants might face higher overall costs, and unexpected maintenance or tax hikes can be a financial burden.

Our Experience with Triple Net Leases

While our portfolio consists mostly of residential rentals, we also own other types of properties including office space. However, it’s not a free standing office space, it’s part of a mixed-use property with four residential units. We personally like this type of property because the risks of office vacancy are mitigated by the residential units, where vacancy is not as great of a risk (read more about our experience here).

When we bought the property, the existing office tenant was vacating so we had to find a new tenant. We hired a commercial leasing broker and he was able to negotiate a triple net lease with a five year term. The terms included annual rent increases as well as a triple net lease payment that covered two thirds of the property taxes, insurance and maintenance costs. This is based on the fact that the commercial space spanned the main floor and a basement area (cumulatively  two-thirds of the total space).

Conclusion

Triple net leases offer a unique distribution of responsibilities and costs between landlords and tenants. While they bring numerous benefits to property owners, it’s crucial to approach them with a clear understanding and ensure that both parties are fully aware of their obligations. As with all lease agreements, clear communication, transparency, and a well-drafted contract are key to a successful and beneficial arrangement for both parties.

Pictures of the office space in our mixed-use property

      

 

 

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

Share

Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

ready to see if
real estate is right
for you? Take The
free Quiz!

If you’re just getting started in your investing career, we have a free resource ready for you. Answer a few quick questions, and you’ll receive a FREE download to help get you results.

Search the Blog

view more posts

Explore

GET STARTED

search