NNN Properties For Sale in Texas
For NNN lease investors, Texas is a hotbed of opportunity. Combining wide open spaces and buzzing urban centers, Texas has plenty of both primary and tertiary markets – and everything in between. That means you’ll likely be able to find the NNN tenant of your choice in Texas’ ever-growing commercial real estate market.
With laissez-faire tax codes and a rapidly increasing population, Texas is a magnet for economic opportunity. Any savvy real estate investor simply can’t overlook what’s happening in Texas. This could be an excellent time to get your foot in the door in a state that’s just at the beginning of its economic boom.
NNN Properties in Texas Overview
Texas is home to nearly 30 million people, and its population is constantly growing, up over 15% in the last decade. That means that its NNN market is growing, too. With low tax rates, affordable real estate prices, and over 3 million business entities, Texas is set up for exponential growth in the coming years, making it an excellent place for a real estate investment.
| Triple-Net Properties in Texas Overview | |
| State population | 29,530,000 |
| Number of business entities | 3,300,000 |
| Average NNN lease property cost | $301/square foot |
| Average cap rate | 6% (varies by sector) |
| Corporate income tax rate | None |
| Personal income tax rate | None |
| Capital gains tax rate | None |
Common NNN Lease Tenants in Texas
The most common triple-net lease tenants in Texas are often considered “recession-proof,” making them attractive for real estate investors. These businesses tend to offer fundamental services and goods that are non-negotiables, even in trying economic times.
A few of these types of companies include pharmacies, grocery stores, convenience stores, gas stations, discount/dollar stores, quick-service restaurants, automotive shops, and medical companies.
Big-name companies like Walgreens, Jiffy Lube, 7-Eleven, and AutoZone have a substantial presence in Texas. But perhaps the biggest player in Texas’ NNN lease scene is Dollar General, a discount store focused on tertiary markets. While Texas certainly has its urban centers, much of the state remains rural, making it a perfect place for a Dollar General location to thrive.
The discount dollar store focuses on less-populated locations; in fact, over 70% of its locations appear in towns with less than 20,000 residents. Even still, Dollar General has grown to be one of the most profitable businesses in rural America.
Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?
When it comes to commercial real estate, investors generally have two options: a net lease or a gross lease. There are many benefits to choosing a net lease over a gross lease, but these two lease types are usually considered opposites.
A gross lease involves a fixed rate that a tenant pays to use a space. That amount does not change based on operating expenses, because landlords under gross leases are usually on the hook for any operating costs. Net leases, on the other hand, allow landlords to pass operating expenses to their tenants.
That means there are a host of benefits for real estate investors who are landlords for net leases. You’ll have more time to focus on your business, you’ll have stable income without worrying about unforeseen expenses, you’ll attract high-quality tenants, and you’ll typically be able to expect planned rent increases, boosting your long-term passive income.
There are three tiers of net leases on the market: single, double, and triple. These categories are also known as N, NN, and NNN leases. Each increasing tier allows the landlord to hand more and more expenses over to the tenant, absolving themselves of increased risk.
Single net leases (N leases) hold the tenant responsible for property taxes (in addition to rent), but the landlord must still pay insurance, maintenance, repairs, and utilities. N leases are less common when it comes to commercial real estate. Double-net leases (NN leases) and triple-net leases (NNN leases) are used much more frequently for investment purposes.
What Types of Net Leases Are Common in Texas?
For savvy real estate investors, there are many different types of net leases available in Texas. However, the most common by far is NNN leases.
NNN leases are usually thought to be the most attractive type of lease for property owners and investors. Why? They hold the tenant responsible for paying operating expenses and costs related to the property, which can include insurance premiums, property taxes, and structural maintenance or repair costs.
NN leases, or double-net leases, are usually seen as a slightly less attractive option. That’s because, with an NN lease, the tenant has to take care of only rent, insurance, and property taxes – meaning that the property owner is responsible for structural maintenance and repairs. Those types of repairs can add up quickly and cut into profits.
With an NNN lease in Texas, a tenant will often pay a lower base rent because they’re on the hook for all of the operating costs associated with the property. On the flip side, NNN leases reduce the investor’s property management responsibilities by passing the majority of those items onto the tenant, meaning they are an excellent source of passive income.
How to Evaluate a Net Lease for Sale in Texas
No matter what tenant you are considering, you’ll want to look at both property value and tenant strength for a triple-net lease. This is especially crucial when you’re evaluating single-tenant properties, like the ones many O’Reilly Auto Parts stores inhabit.
When you’re looking at an NNN lease for sale in Texas, It’s important to look at the property value as well as the tenant strength. Many NNN leases involve single-tenant properties, so you should keep in mind that your tenant concentration can be only either 100% or 0%. In other words, you’ll be generating 100% of your potential cash flow or none of it.
In order to ensure that your NNN lease pans out, you’ll want to ensure that the property you’re investing in meets or exceeds the criteria that the tenant looks for in its locations. That will help ensure that your property stays occupied and you keep generating revenue.
On the plus side, NNN lease tenants are usually large companies with strong balance sheets, so you can normally count on your rent payments arriving on time. Unlike other types of real estate investments, you won’t have to chase down your tenants each month to get your hands on the next check.
What Makes Texas an Attractive State for NNN Leases?
When you’re looking for a real estate investment, it’s important to consider opportunities across the United States. But for NNN leases in particular, states with no income tax are an especially attractive option. Texas is one of those eight states, and the Lone Star State also does not impose a capital gains tax, meaning you’ll get to keep more of your money.
The annual savings you’ll gain from not paying income tax could save you tens of thousands of dollars, and that extra income can be reinvested to make even more. But tax laws aren’t the only factor that makes Texas a great location for NNN property investment.
Research and market trends show that U.S. states experiencing steady population growth have yielded higher levels of success for NNN leaseholders. Therefore, when you’re looking for your ideal NNN property, you might want to consider a state that has a quickly growing population.
The U.S. Census Bureau’s 2020 results show that Texas has experienced a population increase of 15.9% in the past decade – the highest growth rate of any state with no income tax and the third-highest growth rate in the country overall. By combining low taxes with high population growth, Texas is a hotspot for NNN lease investments right now.
