In this video, Joel covers the different types of triple-net properties. He states that within triple net investing, there are sub-asset classes that have different qualities and advantages.
With various types of triple-net properties available, Joel explains the differences in each type along with the responsibilities that may come with each.
What are the different types of triple-net properties?
- Ground Lease
- Leasehold Interest
- Double Net Lease
- Absolute NNN Lease
- Zero Cash Flow Property
- Multi-Tenant Lease
How is each NNN property different?
With a ground lease, you own the land but not the building. Within a ground lease, you typically cannot depreciate the building because of this. Depreciation is an accounting mechanism that allows a company to write off an asset’s value over time.
Unlike a ground lease, a leasehold interest typically allows you to depreciate the building over time. This can be done because the building would be owned but the land is not. As mentioned in the video, Joel states that 100% of the purchase price, for a leasehold interest, can be depreciated since the building will be owned by the investor.
Although Joel is an experienced Principal Broker within triple-net investing, he still recommends checking with your tax professional to confirm depreciation schedules and strategies before purchasing.
A Double Net Lease sometimes carries more financial responsibility obligated by the investor. Responsibilities such as utility lines, parking lot, roofing, structure, etc., can be included in the lease and may require repairs upfront. To prevent this, it is key to read through the lease for clarification on what you will be responsible for as the investor. Joel mentions that sometimes these carry higher cap rates if the investor has to spend the extra money repairing these types of properties. If these repairs have to be completed, the return on this investment can become less depending on the types of repairs needed and what the investor is responsible for versus the absolute triple-net property.
Absolute NNN properties’ leases are typically structured in a way that is headache free and you do nothing but collect a passive check month to month.
A Zero Cash Flow Property is a special tax provision section with the IRS. Joel gives the example of an investor using a 1031 exchange and putting more proceeds into the property than the down payment that is required to assume the loan. After the down payment has been paid some of the excess money, that is re-advanced, can then be used for other investments while preserving the 1031 exchange.
Multi-Tenant Leases are retail strip centers that operate separately from absolute triple-net investments.