NNN Properties For Sale in California
California is a western state in the United States of America that runs up and down the Pacific coast of the country. With a vast and diverse range of climates and attractions, California has numerous national parks, beaches, thriving urban environments, and beautiful weather. It’s a major destination for domestic and international tourists alike, with spots like celebrity-filled Hollywood and upscale San Francisco drawing in visitors from across the globe.
In addition to its beautiful natural vistas, California is known for its burgeoning economy and its status as the center of the nation’s technological development and innovation. Silicon Valley, situated in the northern part of the state, has played host to numerous startups and ventures over the years, many of which have since become household names.
For commercial real estate investors, the strong economic activity and growing population in California are highly appealing. The state is home to a host of triple-net lease tenants, and with land as a limited commodity, owners can reap the benefits of finding a high-quality tenant.
NNN Properties in California Overview
California is home to a wide range of triple-net lease tenants, including household staples like AutoZone, CVS, Walgreens, BP, and plenty of restaurant chains. The median household income in California is $84,097 – higher than that in most of the other American states. In fact, California’s median household income is the seventh highest in the nation.
With an increasing population comes strong economic activity, making California a highly desirable hotspot for triple-net lease properties. While the state has relatively high tax rates, some commercial real estate investors consider this well worth the trade-off.
| Triple-Net Properties in California Overview | |
| State population | 39,240,000 |
| Number of business entities | 4,450,000 |
| Average NNN lease property cost | $4,900,000 |
| Average cap rate | 5.15% |
| Corporate income tax rate | 8.84% |
| Personal income tax rate | Maximum of 13.3% |
| Capital gains tax rate | Taxed as income |
Common NNN Lease Tenants in California
While Chase Bank typically prefers to own its properties, the company will consider a net lease situation to access top-tier properties. Its typical lease term ranges from 15 to 20 years and offers four renewal options throughout that period. Most leased Chase Bank locations employ triple-net ground leases, meaning that they can develop the property while there.
That means that in addition to the high population numbers, the people who live in California tend to have more disposable income than their counterparts in some other states. In other words, there are numerous triple-net lease tenants who thrive in primary markets and enjoy Class A real estate that do extremely well in California.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
Commercial real estate investors will see many benefits when it comes to choosing a net lease over a gross lease. These two types of leases are considered opposites.
The first option, a gross lease, involves a predetermined amount that a tenant pays to rent a space. That amount doesn’t change due to operating expenses, as landlords generally cover operating costs under gross leases. On the flip side, net leases allow landlords to hand operating expenses off to their tenants, leading to more passive and consistent income
There are three tiers of net leases: single, double, and triple (also called N, NN, and NNN). Each increasing level allows the landlord to pass more and more expenses to their tenants, absolving themselves of increased risk as the tiers go up.
Single-net leases pass property taxes over to the tenant in addition to the cost of rent, but still hold the landlord responsible for insurance, maintenance, repairs, and utilities. For that reason, single-net leases, or N leases, are less common for commercial real estate. Double-net leases, or NN leases, and triple-net leases, or NNN leases, are more frequently used.
What Types of Net Leases Are Common in California?/h1>
The range of tenants in California means that there are many different lease types available, so any commercial real estate investor will find something to suit his or her needs. Triple-net and double-net leases are the most common, with lease terms ranging from 15 to 20 years for most tenants outside the restaurant industry, in which terms tend to be slightly shorter.
Triple-net leases, or NNN leases, are generally the most attractive type of lease for property owners and investors. Why? It’s because they hold the tenant accountable for operating expenses and costs related to the property, which can include insurance premiums, property taxes, and structural maintenance or repair costs. Those costs can add up fast, so putting them on the tenant’s shoulders reduces the responsibilities of property management.
Double-net, or NN, leases are a slightly less attractive option. With an NN lease, the tenant is responsible for only rent, insurance, and property taxes – so the property owner has to take on structural maintenance and repairs. Those types of repairs can be pricey and urgent when the need arises, especially big-ticket improvements like roofing.
With a triple-net lease, a tenant will often pay a lower base rent since they’re responsible for all of the operating costs. That said, these leases also reduce the responsibilities related to property management by passing the majority of responsibilities onto the tenant, so they are still highly desirable.
How to Evaluate a Net Lease for Sale in California
No matter what state you’re considering, it is crucial to look at both property value and tenant strength when considering a triple-net lease. In order to ensure that your triple-net lease pans out, you’ll want to ensure that the property you’re investing in meets the qualifications that your tenant prefers in its locations.
On the plus side, NNN lease tenants are usually large companies with strong balance sheets, so you can count on your payments arriving on time each month. Unlike with lower-grade tenants, you won’t be chasing down your renters to get your hands on the next check.
You’ll also want to look at cap rate, a figure that assesses a real estate investment in terms of its profitability and its return potential. Typically, cap rates that land between 5% and 10% are considered good. Lower rates within that range usually indicate that the investment is lower risk. For companies with strong balance sheets and good credit, cap rates are often lower.
What Makes California an Attractive State for NNN Leases?
While California has relatively high taxes for both corporations and individuals, there are still some benefits to purchasing a triple-net lease property in a taxable state. And beyond the tax implications, the growing population and economic opportunity in California are significant draws that attract many commercial real estate investors to the state.
In addition, high median household income means that there are not only people willing to spend money, those people have the money to spend. When your tenant thrives so will you, as they’ll continue renting your property and paying you your monthly check – so it’s important to choose a state that will allow your triple-net lease tenant to shine. California fits the bill.
