Paula Hess is a freelance writer for REALTOR® Magazine.
The New Residential NNN
Learn why interest in triple-net leases is increasing for investors of residential real estate.
November 2, 2014
Although triple-net leases have been the exclusive domain of commercial real estate, the same low rates of return on fixed-income investments are spurring interest in structuring residential properties as triple-net leases.
“People are looking for nontraditional investments,” says Peter Julian, CEO of Triple Net Houses Inc., a Dayton, Ohio–based company that offers investors 5-year triple-net leases that earn as much as 8 percent cap rates—minus the hassles of fixing a clogged toilet. “The typical investor is someone who was reluctant to invest in real estate, but now that investors can do so passively, they’re more willing.”
The company purchases and rehabilitates homes and then sells the home to an investor, essentially leasing the house from the investor as a triple-net lease, Julian explains. For instance, an investor could purchase a home for $50,000 and earn $4,000 or $333 per month on the investment. “The investor is paid regardless of whether the rent is paid,” explains Julian. The tenant pays rent and utilities; Triple Net Houses maintains the homes.
Commercial brokers are circumspect about triple-net leases in the residential sector. “Residential net lease deals are more of a financing structure than a real estate transaction,” says Gary Ralston. Time will tell if NNN will gain traction in residential sectors, but, Julian explains, “This arrangement works better in the Midwest, where costs are lower. Rents do not go up with [home] prices, and the rent for a $60,000 home is the same as for a $120,000 home.”
Updated: November 16, 2018