The idea of managing a triple net (NNN) lease property probably doesn't make sense to a lot of real estate investors. After all, the tenant has 100% responsibility for the maintenance of the property and the owner simply receives a check on the first of the month, right?
Management-free ownership may be the case for many NNN lease properties, but in some situations the fine print of the lease will add a few caveats that the inattentive landlordcan stumble over if he is not careful.When confronted with such a lease, an owner needs to be aware of the issues that can hinder his ability to collect the full NOI that is due.
The following list outlines a few of the common mistakes that NNN lease owners must avoid if they hope to realize the greatest possible yield from their investment.
1. Always keep copies of receipts for expenses that the tenant will reimburse. In many cases, the tenant can require copies of receipts as a condition for reimbursement of the reported expenses. Poor organization and missing receipts may keep ownersfrom reimbursements that are rightfully theirs.
2. Make sure to have relevant dates marked on your calendar – certain reimbursements may not be enforceable after a certain period of time has passed. Even if an owner has kept careful record of expenses, the lease may specify that a tenant is no longer liable for reimbursements if the owner has not delivered a bill or reconciliation statement after a certain number of days. Additionally, late fees incurred by the owner's tardiness in paying bills cannot be passed along to the tenant.
3. Be aware of the difference between a 'true' NNN lease and one that gives the landlord responsibility for the roof and structure of the property. Many leases that are considered NNN will actually direct that the landlord is responsible for expenses relating to the roof and structure of the property. Such expenses, though not on-going issues, can be costly and an owner should budget an adequate allowance to cover these bills when they occur.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
