TRIPLE NET LEASESSome triple net leases may include a stop clause which determines an operating expense amount, which serves as the maximum operating expense that will be paid by the landlord. Any amount above that will be paid by the tripl lease tenant. From a property investing point of view properties leased to credit tenants with long term triple net leases offer the following investment advantages: 1. Stable and predictable long-term cash flows with very little uncertainty 2. Very little property management responsinilities since the tenant is responsible for the proper maintenance of the space rented, especially in the case of single-tenant buildings 3. Possibility for capitalizing on long-term increases in market rents while enjoying a stable cash flow 4. Protection from market rent declines due to the long term leases, at least in terms of the inncome earned by the property
1. Low income return. Because the cash flows of these properties have little uncertainty the investors need to accept low cap rates and income return, that is pay higher acquisition prices that allow for lower income retunr perhaps 5-6%. 2. Inability to take advantage of any strong increases in market rents that may take place during the long duration of the lease 3. Since the cost of maintaining the space rent falls with the tenant the tenant may not appropriately maintain the building in order to reduce costs
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