Commercial real estate is a popular investment choice. But like any investment, it can come with its complexities, and terminology that you will need to understand if you hope to be successful. As you get to know your terms, you’ll also find many that sound similar, such as the definition of triple net lease, compared to other terms like sale leaseback and credit tenant lease. We define those terms below.
Three Terms to Define
- Triple Net Lease
A triple net lease is a type of lease agreement where the tenant agrees to pay all additional expenses (after and including rent) that property owners usually have to deal with on their own. These are the three “nets” – maintenance, insurance, and taxes. In these types of leases, the tenant pays for essentially everything related to the property, so that the property owner needn’t provide any additional investment.
- Sale Leaseback
Sale leasebacks also involve renting a property, sometimes in the form of triple net. But with a sale leaseback, you already own the property and you have decided to sell it to an investor while still running a company from the property. For example, say you own a manufacturing warehouse, as well as the manufacturing plant within the warehouse. You want to earn extra capital for your business, so you sell the property but plan to keep the warehouse active inside it.
You can do that with a sale leaseback, which allows you to sell a property but keep running the property as if it’s your own. In some cases you may sign a triple net lease yourself to the new property owner.
- Credit Tenant Lease
A credit tenant lease is not unlike the definition of triple net lease, except for one exception. With credit/tenant leases, the lender provides you with financing to purchase a property because you already have an agreement in place for a triple net lease – thereby proving that you’ll be able to pay back the loan. These may be in conjunction with a sale leaseback, if you’re the buyer in that scenario.
Learning the Important Definitions
Understanding these definitions is important, because at any point they may affect your financing and your decision making. Indeed, did you know that if you have someone sign a triple net lease, you can receive funding up to the value of your property in a loan that lenders will provide you for a low interest rate? If this is something that interests you, make sure you sign up with CRE Lender today to connect to lenders and banks that are looking to provide you with funding. Sign up now.
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