The dream side hustle is one where you don’t have to invest a lot of your time. Property ownership is a massive commitment with varying degrees of involvement, but specific leasing strategies can reduce your obligations. Here are the best tips for creating long-term, easy contracts that make your investment worth it — while bringing in the extra income you’ve always wanted.
What Is a Triple Net Lease (NNN)?
An NNN is a leasing variation that assigns the tenant all financial responsibility for the property. While most residents are required to pay rent and utilities, they don’t front costs for new appliances, repairs and similar expenses. An NNN would take this burden off real estate managers and delegate it to renters. This also includes taxes and insurance.
NNN leases usually have lower monthly rents than most because of the added maintenance and upkeep costs. They are perfect for commercial properties because companies have a trustworthy income source and enjoy the freedom to adapt the building to their needs. This is why many retail franchises start as NNN agreements, typically lasting around 10-15 years or sometimes less.
Landlords can enjoy a consistent income source without dealing with contractors, listening to complaints or issuing tax payments. Your tenants take care of everything. The most common buildings with NNNs include malls and office buildings, though you can explore countless options.
How to Create a Low-Maintenance Lease Strategy With NNNs
Follow these steps to design your dream life as a property manager.
1. Identify Your Goals
Before signing any contracts and throwing money on the table, determine what you want from the venture. Having clarity could make or break your long-term relationship with your properties. This way, all decisions can work toward these goals, influencing lease terms and how you interact with clients. Determine how much you want to generate from the real estate, how much risk you want to assume and how patient you are to yield returns.
2. Find Enticing Properties
You have a better chance of securing tenants and generating income fast if the property is in a stable, growing area. Buildings with an eco-friendly lean also appeal to commercial audiences, though they can be more expensive, with up to a 21% higher market value.
Assess the property’s conditions with trained inspectors. They will find structural issues and compliance concerns before you waste your hard-earned cash. Foresight is crucial for a long-term, low-maintenance management style because you don’t want to deal with the consequences of degrading real estate later.
3. Screen Tenants and Negotiate Terms
All incoming applications should receive dedicated consideration. Financial reviews, background checks and interviews are vital for verifying identities. They also confirm the tenant’s behaviors, monetary history and reputation before entrusting them with one of your buildings.
Plan for long lease times, like 10 years or more. This will lock tenants in for the future, lessening the chances of having extended vacancy periods. The terms should clearly show how rent is affected by external factors like inflation and their impact on cap rates. Ironclad rent escalation clauses and early lease termination rules are a must. You can speak with rental lawyers if you need additional insight on protecting yourself.
The lease will also outline the tenant’s responsibilities. In an NNN lease, this means taxes, insurance and maintenance. Setting expectations early will avoid conflicts and lessen the chances of renters resigning when their leases are up. If someone reads the lease carefully and feels confident, all they need to do is sign.
4. Manage With Due Diligence
Attorneys should review leases before you hand papers to tenants. While it is exciting to sign the first contract, your side income still needs to adhere to legal requirements. Experts can verify if you’re on the right path for high returns on investment. They can also educate you on the local and federal laws and regulations you need to consider in the future that can impact your success.
Every step has prioritized communication, whether it be with the tenant or a legal professional. These resources will be invaluable in the future for making property management as stress-free and low-maintenance as possible.
Are There Downsides of a Triple Net Lease?
These lease types seem ideal for landlords, but they have a few potential downsides you’ll have to consider. You must create a strategy to prevent these issues before offering leases. Otherwise, you could pay more for repairs than the property is worth.
An NNN is only as successful as the tenant’s reliability. You are trusting them to take care of the property as if it were a home they owned. This also means they can miss tax payments or damage the interior. Encourage quality renters by having high application requirements, such as interviews and references, before accepting the first offer you see.
However, you may struggle to find tenants because people are wary of NNN leases. Many renters don’t want all the responsibility it demands if they aren’t going to own the property entirely. Therefore, getting new renters may be hard initially, and downtime between expired leases could linger longer than you want — a vacant building does little to support your side hustle.
You can take care of this by planning ahead before buying a property. Network with business groups and other local clubs to make connections early. Continue having a presence in these places to get word-of-mouth advertising and discover quality tenants. Extensive application processes will also heighten your chances of finding reliable people, as they may be more dedicated to jumping through hoops to get a nice rental.
Delegate even more of the responsibilities by hiring a property manager to prevent negotiations and tasks from becoming a full-time job. Young professionals in the space say it is the best way to earn passive income without needing to be present all the time.
The Value of Investing in NNN for Financial Freedom
If you are in a precarious job situation, having a backup plan can provide the peace of mind you need. A rental property could be that opportunity, and the least hands-on setup is an NNN. With thoughtful strategizing and communication, you create a consistent income stream, enabling you to achieve your monetary and professional goals with more freedom than before.
