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Q: What is an NNN lease?

A: One of the most popular property types in commercial real estate are single-tenant, Net Net Net ("NNN") leases. These are typically free-standing buildings that are leased to high credit rated, single-retail business tenants with the tenant responsible for all real estate property taxes, insurance, and operating expenses/maintenance (net of taxes, net of insurance, and net of maintenance, thus "Triple Net"). NNN properties offer the investor no management or expense responsibility.

Q: What tenants typically operate under an NNN lease agreement?

A: Triple net lease commercial tenants are generally high-quality, credit-worthy business tenants. They usually have a vested business interest in seeing that a location is well-maintained and attractive to customers. Typical tenants could be McDonald's, Burger King, Starbucks, Auto Zone, and many others. Real Property Advisors, Inc., seeks out corporate-owned or large, well-financed franchisees.

Q: How is the lease in an NNN leased property different from other types of leases?

A: There are two important differences between NNN leases and other commercial property leases: 1) the number of tenants and 2) the tenant's responsibilities. Other commercial properties may have multiple tenants and the owner is responsible for collecting the rent, real estate and building maintenance, management, etc. In an NNN lease agreement, a single corporate or individual tenant agrees to be responsible for all of the expenses associated with the ownership of the property in return for a long-term lease. The investor/owner's role becomes mostly passive with this arrangement.

Q: How are NNN leases typically structured?

A: NNN lease agreements are generally structured in one of three ways:

1) Sale/Leaseback: Sale and leaseback financing is structured through the sale of a property by a business owner/occupant. The business owner/occupant sells the property to an Investor and leases it back on a long-term triple net lease. This frees up cash for the business owner to invest in his business rather than in real estate.

2) Build-to-Suit: A developer enters into a long-term agreement with a corporate tenant, builds the facility to the tenant's specifications, and then sells the property with the new NNN lease upon completion of the development or even before.

3) Existing Property Sale: The sale of an existing NNN leased property by another investor.

Q: What is the investor's role?

A: The investor's role is a passive one — the investor need only collect his rent, which is typically prearranged to be wired each month directly into the investor's designated banking account. This is just one of the many features that make long-term NNN leased property ownership so desirable for self-directed IRA accounts and 1031 exchanges.

Q: How safe are NNN properties?

A: No investment, except a federal bond, has a zero default rate. Therefore, no investment is risk-free. However, with a diligent evaluation of the NNN deal, the investor enjoys the security of the long-term NNN lease, the high cash on cash return on their passive investment, and they own the real estate, but they have zero on-site management responsibilities and no operating costs.

Q: What kind of return can I expect?

A: NNN properties are typically valued using their capitalization rate (cap rate). A cap rate is the percentage of return on the investment as if it were bought with all cash. The cap rate is simply the property's net operating income divided by the purchase price. Subject to the variables to the NNN property, cap rates may vary from below the 4% range for the highest-rated tenants to 10% and higher for less-credit-worthy tenants. Today's attractive interest rates can make for positive amortization, thus possibly increasing said cash on cash returns. Further returns may be realized through the unique tax benefits only real estate provides.

Q: How long are NNN leases?

A: NNN leases are typically single tenant retail properties leased to tenants with high credit ratings on lease terms from 10 to 25 years before comparable extended option periods. Some investment strategies encourage shorter term leases.

Q: What is my "Exit Strategy"?

A: NNN investments offer the investor flexibility as at any time they may sell and cash out, most often with a profit. Most NNN leases have fixed increases in the rent adjusted annually or adjusted in a set period of time (every three years, five years, etc.). Moreover, the tenant has a vested business interest in frequently improving the property to advance their success, causing additional appreciation in the value of your property.