In a NNN lease, what does the investor have to pay for?

[Mike Brown]

From what I understand, the tenant pays for all maintenance, insurance, etc. But what does the investor pay for? If a new tenant comes in, who pays for the remodeling, new roof and such?

[Joel Owens]

In an absolute NNN single tenant lease the tenant pays for everything. Sometimes you might have to forward a property tax bill to them and other times they get it directly.

Now if it's NN it could be just roof landlord is responsible for, roof/structure, or almost everything like parking lot, utility lines, association dues, etc.

In that case it acts more like a gross lease disguised as a NN lease and gets away from the spirit of what NNN is all about and why investors buy them.

So my clients we look at absolute NNN, NN with roof warranty that transfers to new owner, ground lease. We stay away from onerous lease terms on the landlord with a NN lease.

The reimbursement is more for retail strip centers NNN where you have base rent per ft and then CAM. Management is usually not as intensive as say multifamily but still has work so need to make sure you are getting extra yield for return over a single tenant NNN property that is investment grade.

The amount of work with a retail center depends on the tenant mix of national, to regional, to mom and pop tenants.

As far a tenant going dark you the landlord will then have to entice another tenant to lease the space and everything is negotiable as to lease structure, landlord TI's, leasing commissions, etc. It's not just about getting a tenant in today and what cash flow but the longevity of the tenant and resale cap value with equity later on.

Hard to comment further without knowing exactly what you are trying to do.