Real Estate Investment
An NNN Lease is a net lease, structured as a turnkey investment property in which the tenant is responsible for paying the three major expenses associated with commercial real estate ownership. "NNN" stands for "Net-Net-Net", is pronounced "Triple Net" and represents the three most common, consequential real estate related expenses:
- N - Property tax
- N - Insurance
- N - Maintenance
Net Lease Planning as an Investment Tool
NNN lease planning is a rich investment tool which provides the investor with many opportunities to navigate an ever-changing market. NNN lease investments are essentially inflation-protected bonds guaranteed by a credit tenant, rather than a state or local municipality. The tenant makes monthly payments to the landlord, while the real estate (and often rent bumps called for in the lease) provides the investor protection against inflation. Bonds have long been a popular investment tool among retirees and high-income earners seeking fixed income without having to pay taxes for years. NNN lease investments provide similar tax advantages as tax-exempt municipal bonds, without forcing the investor to settle for lower yields or opening the investor up to a large capital gains hit. If an investor were to purchase a bond in the secondary market and turn around and sell it for a profit, years later, he would have to pay a capital gains tax on the profit, regardless of whether or not the bond is exempt from state income tax. This is not the case when investing in NNN leases because of the fact that although structured like a bond, they are still considered real estate investments and therefor fall under the same tax laws as such which means that they can be depreciated in the same manner as similar income producing commercial real estate. The taxes on the income they generate can be written off or deferred over the life of the asset. The investor of course has to pay said depreciation back when he sells, however this too can be circumvented by evoking a Starker’s 1031 exchange and trading into another like-kind property. NNN leased investments are also financeable allowing the investor to leverage the credit of their tenant and the interest payments would also be a write-off. In addition to the numerous tax benefits, retirees often choose NNN leases when planning their estate or retirement because of the straight forward nature of NNN lease investments. A retiree can achieve long term, guaranteed, fixed income with rental increases from a simple product and their Heirs will not be overwhelmed by the many complications associated with wealth management.