Triple Net Lease (NNN) vs. Multifamily Investing

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For commercial real estate investors, there are a few options to consider that will potentially give a good return on investment (ROI). Triple net lease property investments and multifamily syndication are two examples of this. Whether you are a new investor or someone with more experience, it can be difficult to choose between these two options.

Here we will be talking about these two real estate investment types so investors can decide which one fits their financial goals better.

Both triple net leases and multifamily investing are significant parts of the real estate industry. It is important to discuss how they work, how they differ from one another, and how investors can benefit from them.

What is a Triple Net Lease?

A triple net lease, also known as a triple-net or NNN lease, is a type of lease agreement wherein the lessee or tenant is responsible for paying all of the property’s expenses, including building insurance, real estate taxes, and maintenance. These expenses are in addition to rent and utilities. [1]

Because of this setup, triple net leases generally have lower rents since the tenant assumes most of the ongoing expenses that would normally be paid by the landlord.

In a standard commercial lease agreement, the tenant only pays for rent and utilities, while the landlord pays for the rest. There are other types of property net lease agreements. For example, a single net lease requires tenants to pay property taxes on top of the rent and utilities. Meanwhile a double net lease adds property insurance to the list of things tenants are responsible for. Of these three, triple net leases are the most common.

Net lease properties are some of the most popular options for real estate investing especially during difficult economic times. This is because they can give investors a steady source of income through cash flow, usually with an annual rent increase. [1]

Triple net leases are most commonly associated with commercial real estate. They also have a reputation for being relatively safe investments.

What is Multifamily Syndication?

Another real estate investment type that is well-known for being a low-risk investment is multifamily syndication.

A syndication deal is when a group of investors pool their money together to purchase a single asset. When this is done with a multifamily property, such as an apartment complex, a condominium, a duplex, a triplex, or any other property with more than one unit, this is called multifamily syndication. A sponsor, also known as the syndicator, puts the deal together. They locate the property, coordinate the transaction and secure the loan, and then look for real estate investors to participate in the deal. Passive real estate investors will supply most of the capital required in exchange for equity and a portion of the cash flow. [2]

While any real estate asset can be used for a syndication deal, multifamily syndication is the most popular. Multifamily properties are generally more expensive, and therefore harder for investors to secure on their own. Multifamily properties also bring in a more consistent cash flow because there are multiple tenants that pay rent on a monthly basis. This is what makes multifamily syndication one of the safest real estate investments.

Which One is Better: Triple Net Lease vs. Multifamily Syndication?

Triple net leased properties have recently gained popularity among investors because of its low-risk approach. But the same can be said for multifamily syndication. Both investment types provide a steady cash flow for real estate investors.

Triple net leased investments usually include commercial properties such as shopping malls, office buildings, industrial parks, and free-standing buildings operated by restaurant chains, pharmacies, and banks. The typical lease term is between 10 and 15 years. It also comes with a built-in contractual rent escalation. [1]

This setup benefits investors because they do not have to worry about vacancies, improvement costs, leasing fees, or other management concerns. They can even roll their capital into another triple net lease investment without paying taxes through a 1031 tax-deferred exchange once the underlying properties are sold.

NNN assets can also be found, reviewed, and purchased with very little direct involvement from the investor. And because these properties do not have common areas that have to be maintained, there is even less involvement on the part of the investors. Almost all responsibilities fall upon the tenant. [3]

Triple net lease investments also benefit the tenants because they get to have more freedom with their structure. They can freely customize their space for more brand uniformity, even without the capital investment of a purchase.

To participate in triple net lease investments, the investor must be accredited. This means they need a net worth of at least $1 million excluding the value of their primary residence. An accredited investor may also be an individual with an annual income of $200,000 (or $300,000 for joint filers). [1]

For smaller investors, the only option is to participate in real estate investment trusts (REITs) that focus on triple net lease real estate.

Overall, this type of investment is definitely worth pursuing because it is flexible, safer, and reliable.

In many ways, NNNs and multifamily syndication deals are similar. They are safer and passive investments that require little to no involvement from the investors. They are also similar in the fact that most syndication deals are only accessible to accredited investors.

Multifamily syndication allows investors to profit from cash flow, appreciation, and equity build. The investment itself is protected by the real estate asset. Just like triple net leases, syndication deals are passive. Investors don’t have to deal with property management, emergencies, accounting, and tenant concerns. [4]

But the key benefit of multifamily syndication is that it allows investors to participate in real estate deals that they otherwise may not be able to. Since multifamily properties are larger and have multiple units, they tend to be harder to acquire. But through syndication, raising the capital is significantly easier. Investors don’t even have to do any of the work to put the deal together because the syndicator already handles that.

While a triple net lease investment is also passive, you still have to become a landlord. This is not the case for syndication deals. It is perfect for investors who don’t have the time or interest in becoming a landlord. You do not have to take on any additional responsibilities.

Investors can also be more selective when it comes to the syndication deals they participate in. This is a significant advantage over things like REITs or blind funds wherein investors cannot choose the properties they are investing in. With syndication, you can choose to work with a syndicator you trust—such as BAM Capital—and participate in deals that you believe in.

Syndication deals are also less risky. You are pooling money with other passive investors, meaning you will only be liable for losses that are equivalent to what you invested.

In terms of occupancy, the long-term nature of triple net leases keeps the cash flow steady for several years. On the other hand, tenants in multifamily properties tend to come and go. But because of the number of units, investors don’t have to worry too much about vacancies. In well-located apartment buildings, vacant units are quickly reoccupied. This gives multifamily properties a significant edge over single-unit properties where a vacancy would completely halt the cash flow.

The larger the property, the less vacancy will take its toll on investors’ pockets. In fact, large multifamily units have low vacancy rates. This makes it possible to maintain cash flow even if there are several vacant units. [4]

Another benefit of multifamily syndication that’s worth mentioning is the fact that it is much less time-consuming compared to other real estate investments. Since most of the work is done by the sponsor—in this case, BAM Capital—you as an investor have more time to pursue other investments. The fact that you do not have to manage the property yourself means you are free to do other things like run your business, or focus on other investments. Multifamily syndication basically gives you the benefits of real estate investing without all the responsibilities that usually come with owning a property.

Speaking of property management, either the syndicator will manage the real estate asset themselves or hire a third party company that specializes in property management. Either way, it will be out of your hands. This eliminates the pressure of maintaining such a large property including all the tenants living in it.

Since syndication deals may vary from one deal to another, it is your responsibility as an investor to do your due diligence and read through the partner agreement. You would also want to work with a reputable syndicator with a consistent track record such as BAM Capital.

When it comes to which one is better between triple net lease investments and multifamily real estate syndication, it is all a matter of preference. It depends on your financial goals and which one will be more beneficial to you in the long run

But if you are an accredited investor who is interested in multifamily syndication, you need to work with BAM Capital to get the best chances of succeeding in this real estate investment.

Work with BAM Capital to Achieve a Well-Rounded Multifamily Portfolio

For investors who want to gain the benefits of owning a multifamily real estate property without the headache of actually running them, multifamily syndication is the best investment strategy. If you are an accredited investor, work with BAM Capital.

BAM Capital is an Indianapolis-based syndicator that has a strong Midwest focus. They prioritize multifamily real estate assets that are Class A, A-, and B++. BAM Capital uses an award-winning multifamily investment strategy that allows investors to grow their wealth through syndication while mitigating risk. [5]

With its vertical integration strategy, BAM Capital creates forced appreciation. The result is a low-risk real estate investment for passive investors. In fact, BAM Capital currently has $700 million AUM and 5,000 units. [5]

BAM Capital negotiates the purchasing and financing of high quality multifamily properties on behalf of passive investors. Accredited investors can schedule a call with BAM Capital and invest today.

 

BAM Multifamily Growth & Income Fund III

BAM Capital created this fund in order to yield consistent and reliable cash flow, long-term appreciation, and accelerated tax benefits. The fund aligns with BAM Capital’s demonstrated track record of successful multifamily investing by continuing to implement our signature investment thesis, now in fund format. The fund aims for greater overall returns and lower risk through a multi-asset diversification strategy.

  • Consistent passive income
    Lower-risk assets with in-place cash flows with the ability to distribute preferred return after acquisition.
  • Significant tax benefits
    A cost segregation analysis allows for accelerated deprecation to years of ownership. This large passive loss gets passed onto investors through a K1.
  • Vertically integrated company
    In-house property management and construction allow for predictable cost reduction and value add.

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