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Hands Free Investing
There comes a time in many investors lives when they decide they would like to spend less time managing their real estate holdings and more time enjoy the rewards of the labors.
The traditional investment vehicle to achieve this “no hands” investment approach is the net lease property. In its purest form (called a triple net lease) the tenant manages the property, doing everything from paying the taxes and insurance, sweeping out the driveway to repairing the roof if needed. The only obligation of the owner is to pay any debt service from the rent check.
A further advantage of most net leased properties are long term leases (typically 15 to 25 years with 5 year options after that) with defined rental rate increases along the way (called bumps). This can provides steady income no matter what the condition of the economic or local real estate market. The keys to successful net lease investments are good demographics (long term appreciation), long term leases and a strong credit tenant.
There are the following variations on Net Leased investments:
Absolute Triple Net (NNN)
Also known as a Bond Lease. The tenant is completely responsible for all operating expenses including maintenance, repairs, and replacement for the entire property, without limitation. This is the type of lease that most investors expect when purchasing a triple net lease.
Double Net Lease (NN)
The double net lease is like the triple net lease only the owner is typically responsible for the structural components of the building such as the roof, bearing walls and foundation.
Modified Net (aka Modified Gross)
The tenant pays its own utilities, interior maintenance and repairs, and insurance. The owner pays for everything else, including real estate property taxes.
Triple Net Synthetic
When the IRS approved holding title as a Tenant In Common (TIC) as a “like kind” exchange and subsequently allowing an investor to defer the payment of capital gains taxes, what some call a “synthetic” triple net lease or a Tenant In Common (TIC) investment was created.
A Tenant-in-Common investment provides the real estate investor with the advantages of a triple net lease, namely someone else manages the property. Frequently TIC offer ownership in a larger institutional quality property, with either single or multi-tenants, appreciation, cash flow and annual depreciation benefits. In addition to the net leased advantages a TIC also provides opportunity for an investor to further diversify its portfolio.
As with all investments it is crucial that investors consult with their tax and legal advisors prior to committing to making any commitments.
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