Real Estate Term of the Day – Triple Net Lease
A triple net lease is an agreement that designates that the tenant is solely responsible for all costs relating to what is being leased, in addition to the rent fee. It is called a triple net lease because it requires the tenant to pay the net amount for 3 types of costs – real estate taxes on the leased asset, building insurance, and common area maintenance. Because a tenant has to pay these expenses, the rent charged for a property in a triple-net lease is often lower than the rent charged in standard leases. This style of leasing is most commonly utilized in commercial real estate.
Triple-net leased properties are popular investments for investors looking for steady income at a low risk. These investments are typically offered as a portfolio of properties consisting of three or more commercial properties that are fully leased by tenants. The benefits for investors include long-term, stable income with the possibility of capital appreciation of the underlying property. When the properties are sold, investors can roll their capital into another triple-net investment without paying taxes through a 1031 tax-deferred exchange.