In a Triple Net Lease (NNN) investment, the tenant is responsible for paying not just rent, but also for a portion or all of the operating expenses, including property taxes, insurance, and maintenance costs. As a result, the rent is typically calculated as a base rent plus the tenant’s share of operating expenses.
The exact calculation method may vary depending on the lease agreement, but typically the rent is determined as follows:
- Base Rent: This is the fixed amount of rent paid by the tenant each month or year, which is usually based on the square footage of the property and the market rent rates in the area.
- Operating Expenses: The tenant is responsible for paying a portion or all of the operating expenses associated with the property, which may include property taxes, insurance, maintenance, repairs, utilities, and other expenses. These expenses are typically estimated by the landlord at the beginning of the lease term and may be adjusted annually or periodically to reflect actual expenses.
- Rent Adjustment: Based on the tenant’s share of operating expenses, the rent may be adjusted annually or periodically to reflect any changes in operating expenses. For example, if property taxes increase, the tenant’s share of expenses would increase, and the rent would be adjusted accordingly.
Overall, the rent in a Triple Net Lease investment is typically higher than in a traditional lease because the tenant is responsible for paying a portion or all of the operating expenses. However, the landlord also benefits from having a predictable income stream and reduced operating expenses.