In a NNN lease does the landlord own the land and building or just the building by itself?

Also when purchasing a NNN property, do you purchase from the tenant or from true developer?
In Buying Property - Asked by Scott F. - Jun 2, 2009
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Mitch P.
Broker/Agent
Beaverton, OR

A NNN (Triple Net) lease simply means the tenant pays to the landlord base rent + Taxes, Insurance, and Common Area Maintainence.
You would be purchasing the property from the owner, it could be from the Tenant who is an owner/user, or it could be from an investor/developer who owns the property.
Generally the owner will own the land and improvements, unless the building was built on a long term land lease.

Jun 2, 2009
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Leslie H. C.
Broker/Agent
Denton, TX

The term NNN describes the lease terms. A tenant, developer or other could be the owner of the property. The seller offers a property for sale with a NNN lease. NNN typically implies that the tenant is responsible for property taxes, insurance and maintenance. The lease goes into great detail describing tenant and or landlord responsibilities. With an Absolute NNN leased property the landlord would have no responsibilities other than collecting rent each month. This is referred to as a coupon clipper. Walgreens Drug stores are typically absolute NNN lease properties. In a Dollar General Retail Store NNN lease, the tenant is typically responsible for the taxes, insurance and maintenance of the property. Some Dollar General Leases make the landlord responsible for the roof, structure and sometimes repairs that exceed a set amount. If you are not sure about the terms of the lease, have a real estate attorney review the lease and give you a legal opinion. Leslie H. Cox has over 20+ years practicing commercial real estate.

Jun 2, 2009
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Paul S.
Broker/Agent
Glendora, CA

Scott
You could buy a NNN property that you don't own the land (leased land). In that case you can depreciate 100% of your investment (check with you tax advisor to make sure) and, because you are not buying the land, pay less overall. NNN is merely a method to show that the tenant is paying 100% of the costs of the property. If the owner of the property is responsible for something, then properly, the lease should be referred to as a NN or N depending on the level of responsibility. Beware that many times a property is advertised as a NNN when in fact the owner may be on the hook for roof, or structure, both, etc. That would make it something less than a pure NNN.
Typically a builder builds the building with the ultimate user/tenant already in place. The NNN lease amount is often determined by taking the cost of the building and the land an multiplying it by a factor, say 12%. That produces the lease amount. The going cap rate is then divided into the lease amount and you get the sale price. The builder makes money on the difference between cost and sale price. If the lease amount is calculated off 12%, for example, and the price was determined by an 8% cap, the builder would make a 50% return on the building. Do the math:
cost of building and land $1,000,000X12%= $120,000 rent NNN. $120,000/8%= $1,500,000 sales price. Builder makes $500K minus sales costs of course.
You may also be buying from a seller/user that wishes to lease back the property on a NNN basis (sale/leaseback). In many areas of the US owning the real property is not as profitable as leasing which can be determined by a lease vs buy analysis.
paulsylvester@remax.net or 800 554-7362
Paul Sylvester, CCIM

Jun 2, 2009
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Shawn J.
Broker/Agent
San Diego, CA

Scott,
In a NNN Lease or a NN Lease the landlord may own the land and building or just the building or land itself, it all depends if the property is fee-simple or not. There are ground leases and leaseholds also. Leases all pertain to the tenant. If you're looking to purchase a passive investment where you as a landlord only owns the Real Estate then you will want to look at Real Estate with a NNN lease signed by the tenant. When you purchase a NNN you will want to go through a broker to get proper representation as a buyer. I specialize in these types of investments, feel free to call me at (858) 774-5399 or (760) 452-2404 at Net Leased Real Properties. Best, Shawn J.

Jun 3, 2009
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Paul S.
Broker/Agent
Glendora, CA

Scott
You could also only own the land on a NNN basis. Without owing the improvements however you would have no depreciation and it may be next to impossilbe to get a loan.

Jun 4, 2009
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