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Why It’s Time to Start Working on Your NNN Estimates for Next Year

Owning commercial investment real estate can be both rewarding and demanding. As an owner who self-manages their property, you’re familiar with the unique challenges and responsibilities that come with this role. One key task that should never be left to the last minute? Preparing your NNN (triple net lease) estimates for the upcoming year. With the year drawing to a close, now is the time to plan, prepare, and ensure a seamless experience for both you and your tenants.

  1. What are NNN Estimates and Why are They Important?

For the uninitiated, NNN or “triple net” refers to a type of lease where tenants are responsible for their proportionate share of property taxes, insurance, and common area maintenance expenses, in addition to their base rent. Your NNN estimate is a projection of these expenses for the coming year, which you then pass through to your tenants.

Accurate NNN estimates:

  • Ensure that expenses are adequately covered without digging into your revenue.
  • Prevent surprises for tenants, helping maintain a positive landlord-tenant relationship.
  • Facilitate financial planning for both parties.
  1. The Benefits of Starting Early
  • Accuracy and Diligence: By giving yourself ample time, you can dive deeper into reviewing past expenses, understanding market trends, and forecasting future costs. This diligence minimizes discrepancies and shortfalls.
  • Tenant Communication: Sharing these estimates early ensures transparency. It provides tenants ample time to prepare their budgets and potentially opens a dialogue if there are questions or concerns.
  • Vendor Negotiations: Starting early allows you to renegotiate contracts or seek out competitive bids for services, potentially leading to cost savings.
  1. Factors to Consider

While determining your NNN estimates, consider:

  • Historical Data: Review the actual expenses from the past couple of years to identify any patterns or trends.
  • Market Conditions: Economic factors can influence costs. For example, a rise in property values might lead to increased property taxes.
  • Capital Improvements: If you’re planning significant improvements or repairs, consider their impact on your NNN expenses. For example, will a new piece of equipment eliminate recurring repair & maintenance expenses?
  • Vendor Contracts: Review any contracts with vendors that might be up for renewal. This will give you an idea of potential cost increases.
  1. Collaborate and Seek Expertise

Even if you’re self-managing, it doesn’t mean you have to do it all alone. Engage with professionals like accountants, tax consultants, or a commercial real estate broker (like myself) who can provide insights, suggestions, and perhaps even introduce you to cost-saving opportunities.

  1. Communication is Key

Once your estimates are ready, communicate them clearly to your tenants. Provide a detailed breakdown, and be prepared to answer questions. Being open and transparent fosters trust and can prevent misunderstandings down the line.

Being proactive in preparing your NNN estimates for the upcoming year is a hallmark of a successful commercial real estate owner. Not only does it ensure you’re on top of your finances, but it also demonstrates professionalism and consideration to your tenants. So, as we approach the year’s end, embrace this task with the seriousness it deserves. After all, your property’s success depends on it.

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