FAQ

A Triple Net Lease (NNN) is a lease agreement where the tenant is responsible for three main expense categories in addition to rent: property taxes, insurance, and maintenance. This structure provides predictable income for landlords while minimizing operational responsibility.

Key Features of a Triple Net Lease: – Tenant pays property taxes, building insurance, and maintenance (the “three nets”). – Ideal for passive real estate investors seeking reliable, long-term income. – Common in retail, medical, and industrial commercial real estate.

A Triple Net Lease (NNN) is a lease agreement where the tenant is responsible for three main expense categories in addition to rent: property taxes, insurance, and maintenance. This structure provides predictable income for landlords while minimizing operational responsibility.

Key Features of a Triple Net Lease: – Tenant pays property taxes, building insurance, and maintenance (the “three nets”). – Ideal for passive real estate investors seeking reliable, long-term income. – Common in retail, medical, and industrial commercial real estate.

In a triple net lease, the tenant assumes nearly all the responsibilities typically handled by the landlord. The investor (landlord) collects a base rent, while the tenant covers operating costs.

How They Work in Practice: – Tenants handle day-to-day property operations. – Landlords receive net rent, with fewer surprise expenses. – Lease terms often span 10–25 years, with rent escalations. – Suitable for corporate tenants like Walgreens, Starbucks, and Dollar General.

Why It Matters: NNN leases turn commercial real estate into a bond-like investment, delivering consistent cash flow with minimal management.

Triple net investments offer a rare combination of predictability, passive income, and long-term stability.

Benefits of Investing in NNN Properties: – Stable cash flow with corporate-backed leases. – Minimal landlord duties (true mailbox money). – Attractive cap rates (typically 5–7%+). – Perfect for 1031 exchange replacement property. – Resilient to market volatility when leased to investment-grade tenants.

Ideal For: – Retirees, doctors, dentists, and high-net-worth investors looking to preserve wealth and defer taxes.

While triple net properties are often low-risk, there are a few potential downsides.

Top Risks to Watch: – Tenant default or bankruptcy – Vacancy risk (re-leasing can take time) – Flat rent periods (no escalations = diminished returns in inflationary times) – Overpaying based on tenant brand rather than lease quality or location

Mitigation Tips: – Choose credit-rated tenants. – Prioritize high-traffic locations. – Review lease terms for early termination clauses or hidden costs.

Cap Rate Formula: Cap Rate = (Net Operating Income / Purchase Price) × 100

Why It Matters: – Helps compare investment opportunities quickly. – Indicates the level of risk and return — higher cap rates often signal higher risk. – Affects property valuation and investment strategy.

Example: A $2,000,000 NNN property generating $120,000 in annual NOI has a 6.0% cap rate.

Cap rate (Capitalization Rate) is a measure used to evaluate the return potential of an investment property. It’s calculated as the ratio of Net Operating Income (NOI) to the property’s purchase price.

Cap Rate Formula: Cap Rate = (Net Operating Income / Purchase Price) × 100

Why It Matters: – Helps compare investment opportunities quickly. – Indicates the level of risk and return — higher cap rates often signal higher risk. – Affects property valuation and investment strategy.

Example: A $2,000,000 NNN property generating $120,000 in annual NOI has a 6.0% cap rate.

Cap rate (capitalization rate) is calculated by dividing the Net Operating Income (NOI) by the purchase price of the property.

Cap Rate Formula: Cap Rate = (NOI / Purchase Price) × 100

Example: If a NNN property generates $150,000 in annual NOI and costs $2,500,000: $150,000 / $2,500,000 = 6.0%

What to Know: – NOI includes rent minus expenses (excluding mortgage payments). – A higher cap rate often reflects higher perceived risk. – For NNN investors, cap rate is a key metric to compare income potential across properties.

A “good” cap rate varies depending on market conditions, tenant credit, lease length, and location. However, most investors target cap rates between 5.0% and 7.5% for stabilized NNN properties.

Guidelines by Risk Level: – 4.5%–5.5%: Low risk (e.g., Walgreens with 20-year lease) – 6.0%–6.5%: Balanced risk (e.g., AutoZone, fast food tenants) – 7.0%+: Higher risk or shorter lease term

Tip: A good cap rate should align with your investment goals, risk appetite, and financing strategy.

Triple net leases are most often signed by national or regional corporate tenants that prefer long-term occupancy with control over the property.

Common NNN Tenants: – Retail: Walgreens, CVS, Dollar General, 7-Eleven – Fast Food: Taco Bell, Starbucks, Chick-fil-A – Medical: DaVita, Fresenius, dental groups – Industrial: FedEx, Amazon distribution, auto parts suppliers

Key Features of Ideal Tenants: – Strong credit rating (BBB+ or higher) – History of on-time rent payments – Long-term business models that rely on location.

NNN lease terms are often long-term, stable, and structured for passive ownership.

Standard Lease Term Details: – Initial lease term: 10–25 years – Renewal options: 2 to 4 periods of 5 years each – Rent escalations: 1–2% annually or 5–10% every 5 years – Absolute or bondable terms: Tenant bears full responsibility for expenses

Landlord Responsibilities: Usually none, but verify if roof/structure maintenance or CAM exclusions exist in the lease.

Due diligence protects your investment by verifying the tenant, property, and lease performance.

Key Due Diligence Steps: – Lease review: Confirm term, rent escalations, maintenance clauses, and default provisions – Tenant financials: Review credit rating, financial statements, and store performance – Property inspection: Check for roof/HVAC issues, zoning compliance, environmental risks – Title and survey: Ensure clear ownership and correct property boundaries – Rent roll verification: Confirm payment history and any rent concessions

Pro Tip: Use a buyer’s broker with triple net experience to guide you through the process.

A buyer’s broker in NNN transactions represents the investor’s interests exclusively, helping you identify, evaluate, and acquire triple net properties without conflict.

Key Responsibilities: – Sources properties from both on-market and off-market listings – Conducts due diligence on leases, tenants, and locations – Negotiates favorable terms and helps structure 1031 exchanges – Provides access to developers and exclusive opportunities

Why Use One: – The listing broker represents the seller — their job is to maximize price. – A buyer’s broker protects your interests, often at no additional cost (paid by seller).

Yes, NNN properties are among the most popular replacement assets in a 1031 exchange due to their passive nature, long-term leases, and income stability.

Advantages in a 1031 Exchange: – Defer capital gains taxes on the sale of previous investment property – Replace active management with passive income – Ideal for retirees and high-net-worth individuals

Requirements: – Must identify replacement NNN property within 45 days – Must close within 180 days – Use a qualified intermediary (QI) to hold proceeds

Not all triple net leases are the same. Understanding the difference helps investors avoid unexpected costs.

Absolute NNN (or “bondable”) Lease: – Tenant pays 100% of taxes, insurance, and maintenance — with no exceptions – Often includes roof, structure, and parking lot – No landlord responsibilities — ideal for true passive income

Modified NNN Lease: – Landlord may retain responsibility for capital expenses (roof, structure) – Some CAM or insurance exclusions may apply – Slightly higher yield but more active involvement

Location is one of the most important factors influencing an NNN property’s value, cap rate, and liquidity.

High-Value Location Characteristics: – Dense population with strong traffic counts – Hard corner or signalized intersection – Near major retailers (Walmart, Target, etc.) – Located in income-stable, growing metros

Impact on Investment: – Better locations command lower cap rates – Easier to re-lease or sell – High-credit tenants often prefer premium locations

NNN investors have several financing choices based on property type, tenant credit, and lease term.

Common Loan Types: – Bank loans (typically 25%–35% down) – CMBS loans (Commercial Mortgage-Backed Securities) – Life insurance company financing (for high-credit tenants) – Private financing (for quick closings or non-conforming deals)

Loan Terms: – Fixed rates from 5 to 10 years – Amortization: 20 to 30 years – Rates based on tenant strength and lease length

Tip: Stronger tenants and longer leases = more favorable loan terms.

Tenant credit rating reflects the financial strength and payment reliability of the company leasing the property.

Rating Agencies: – Moody’s, Standard & Poor’s (S&P), Fitch Ratings

Rating Scale (S&P Example): – AAA to BBB- = Investment Grade – BB+ and below = Non-Investment Grade

Why It Matters: – Investment-grade tenants reduce risk and vacancy concern – Easier to finance and sell properties with credit tenants – Bondable leases are more common with high-credit tenants

Rents in triple net leases are typically structured as base rent with scheduled escalations over time.

Typical Structures: – Flat rent for first 5 years, with 10% increase every 5 years – 1%–2% annual rent bumps – Rent increases tied to CPI (Consumer Price Index)

Escalations help: – Offset inflation – Boost investor cash flow over time – Increase property resale value

In most NNN leases, the tenant is responsible for maintenance, but it’s critical to read the lease to determine exactly who handles what.

Absolute NNN: – Tenant handles all maintenance, repairs, and replacements, including roof and structure

Modified NNN: – Landlord may be responsible for capital repairs – CAM (Common Area Maintenance) responsibilities may be shared or capped

What to Confirm: – Is the lease truly “absolute”? – Are there caps on maintenance reimbursements? – Are HVAC, roof, or structure excluded?

Diversification in NNN investing helps reduce risk and stabilize returns over time.

Ways to Diversify: – By tenant industry (e.g., medical, retail, QSR) – By geography (multiple states or regions) – By lease term (short- and long-term leases) – By tenant credit (mix of investment-grade and non-rated)

Benefits: – Smooths income if one tenant defaults or vacates – Reduces exposure to market-specific downturns – Provides options for liquidity and refinancing

Critical questions can reveal issues or confirm strengths of an NNN property.

Top Questions: – Is the lease truly absolute NNN or modified? – Are there rent escalations? How often? – What is the tenant’s credit rating? – Has the tenant ever defaulted? – Are there any landlord obligations under the lease? – When do lease options and expirations occur? – Are there any environmental or zoning issues?

Pro Tip: Request a full copy of the lease — not just a summary

Evaluating tenant strength is critical for understanding the long-term stability of your NNN investment.

What to Review: – Credit rating (Moody’s, S&P, Fitch) – Public financial statements (10-K, balance sheets, cash flow) – Debt-to-equity ratio, EBITDA, profitability – Store-level sales (if available) – Lease performance across portfolio

Pro Tip: Even without a credit rating, financial strength can often be verified through lease guarantees, audited financials, or corporate parent support.

Triple net properties offer several favorable tax advantages, especially for high-net-worth investors.

Primary Tax Benefits: – Depreciation: Shelter rental income by depreciating the structure (not land) – 1031 Exchange: Defer capital gains tax by reinvesting in like-kind property – Cost Segregation: Accelerate depreciation on certain building components – Estate Planning: Step-up in basis at death eliminates deferred taxes

Bonus: NNN properties in no-income-tax states (e.g., TX, FL, NV) can reduce your state tax exposure.

Knowing your exit options allows for flexibility in your investment horizon.

Common Exit Strategies: – Hold for income and pass to heirs – Sell before lease expires to maximize value – Sell after lease renewal or rent bump – 1031 exchange into another passive asset – Refinance to pull out tax-free cash flow

Timing Matters: Properties are most valuable with at least 10 years remaining on the lease.

Yes, investors can use self-directed IRAs and trusts to purchase triple net properties.

How It Works: – Use a Self-Directed IRA (SDIRA) custodian – Title is held in the name of the IRA – Income flows back into the IRA tax-deferred or tax-free (Roth) – All property-related expenses must be paid from the IRA

Trusts: – Living trusts or irrevocable trusts can hold NNNs – Useful for estate planning, privacy, and probate avoidance

Caution: You cannot personally guarantee a loan in an IRA structure.

The level of landlord responsibility defines whether an NNN investment is passive or active.

Passive NNN Investment: – Absolute NNN lease – Tenant pays all expenses including roof, structure, and taxes – No landlord involvement in daily operations

Active NNN Investment: – Landlord responsible for some repairs (e.g., roof, HVAC) – CAM caps or ambiguous lease language – Requires oversight or third-party property management

Pro Tip: For a hands-off investment, confirm the lease is “bondable” or absolute.

A ground lease is when the investor owns the land and leases it to a tenant who builds and owns the building.

Are They NNN? Yes — most ground leases are NNN or bondable in nature.

Ground Lease Features: – Tenant pays all expenses, including property taxes and insurance – Lease terms often exceed 30–50 years – Tenant builds improvements at their own expense

Benefits: – Low maintenance – Predictable long-term income – Excellent for estate planning and 1031 exchanges

Risk: – If tenant defaults, you get the improvements — but re-tenanting may be harder.

Each NNN property type serves different investment goals.

Retail: – Includes fast food, banks, convenience stores – High visibility and traffic counts – Shorter lease terms (10–15 years)

Industrial: – Distribution centers, warehouses, logistics – Lower maintenance, long-term leases – Often large single-tenant buildings

Medical: – Dialysis centers, urgent care, dental offices – Recession-resistant tenants – Often regional rather than national credit

Choose based on your preferred risk, yield, and tenant durability

NNN investments are more insulated from economic downturns, but not immune.

Economic Impacts: – Recession: Credit tenants often remain strong; lower-tier tenants may default – Inflation: Rent escalations protect income value – Interest rates: Cap rates may rise with rates, affecting resale value

Resilient Sectors: – Essential retail (groceries, pharmacies, gas) – Healthcare – Discount retailers (Dollar General, Family Dollar)

Tip: Focus on essential service tenants for long-term stability.

Both have pros and cons depending on your income goals and risk tolerance.

Single-Tenant Pros: – Simpler lease management – Lower vacancy risk if tenant is investment-grade – Often longer lease terms

Single-Tenant Cons: – 100% income loss if tenant vacates

Multi-Tenant Pros: – Diversified income stream – Shorter lease-up time if one tenant leaves

Multi-Tenant Cons: – More management – Harder to obtain absolute NNN terms on all units

Choose based on your appetite for diversification vs. simplicity.

Triple Net REITs (Real Estate Investment Trusts) are publicly traded companies that own and manage NNN-leased properties.

Key Features: – Portfolio diversification across tenants and property types – Monthly or quarterly dividends – Liquidity — buy/sell like a stock

Examples: – Realty Income Corp (O) – National Retail Properties (NNN) – W.P. Carey (WPC)

Pros: – No active management – Access to NNN assets with low capital

Cons: – Less control, market volatility exposure – Dividends taxed at ordinary income rates

Triple net properties stand out for their passive nature and long-term leases compared to other commercial real estate (CRE) asset classes.

NNN vs. Other CRE Types: – Multifamily: Higher tenant turnover, more active management, more variables – Office: Longer vacancy periods, market-sensitive – Industrial: Longer leases, but location-dependent – NNN Retail: Long-term leases, minimal landlord duties

Summary: Triple net properties offer bond-like reliability with corporate-backed income, making them ideal for low-touch investors.

The NNN market continues to evolve with economic shifts and tenant performance.

Current Trends: – Cap rate compression in high-demand sectors (e.g., medical, discount retail) – Shorter lease terms for new construction – Surge in sale-leaseback deals as companies unlock capital – Increasing demand for essential service tenants – Institutional buyers expanding into smaller markets

Insight: Investors are prioritizing stability, tenant credit, and rent escalations amid economic uncertainty.

Off-market NNN deals often offer better pricing and less competition.

How to Find Them: – Work with a buyer’s broker with developer relationships – Attend real estate investment conferences – Use mailing campaigns targeting owners of long-term assets – Network with franchise owners or regional chains – Monitor public records for corporate real estate activity

Pro Tip: Developers often offer first-look deals to trusted brokers before hitting the market.

“Investment-grade” in NNN real estate refers to the quality of the tenant and lease.

Criteria: – Tenant credit rating of BBB- or higher (S&P) – Long-term lease (10+ years remaining) – Bondable structure (absolute NNN) – Strategic location with strong demographics

Benefits: – Easier to finance – Greater buyer demand – Lower risk of default – Higher resale value

These assets are often favored by institutions and private wealth firms

Common mistakes can erode returns or increase risk in NNN investing.

Avoid These Pitfalls: – Not reading the full lease — summary abstracts may omit key terms – Ignoring tenant creditworthiness – Overpaying due to brand name without lease review – Assuming all NNN leases are truly passive – Underestimating re-lease time if tenant vacates

Solution: Conduct full due diligence or work with an experienced NNN buyer’s broker.

Inflation reduces the purchasing power of future income — and your lease structure determines how protected you are.

Effects: – Flat leases lose real value over time – Leases with fixed rent bumps or CPI escalations protect income – Rising expenses don’t affect landlords in true NNN leases

Best Practices: – Favor leases with annual or scheduled increases – CPI-based rent escalators offer hedge against unexpected inflation spikes

Even in NNN leases, proper insurance coverage is essential to protect both tenant and landlord interests.

Required Tenant Policies: – General liability insurance – Property insurance (covering improvements and contents) – Business interruption insurance (recommended)

Landlord Policies: – Lender-required insurance (title, hazard, flood if applicable) – Umbrella coverage for added protection

Check the lease to confirm coverage limits, naming landlord as additional insured

Yes, but lease modifications must be mutually agreed upon by landlord and tenant, and formalized in writing.

Common Modifications: – Early lease extensions or renewals – Rent restructuring (e.g., temporary reductions, deferrals) – Adding CAM caps or modifying repair clauses

Risks: – May alter property valuation – Could reduce lender confidence or loan eligibility

Tip: Always consult a real estate attorney before agreeing to any material changes

Renewals are typically governed by the original lease and outlined in advance.

Common Structures: – 2–4 renewal options of 5 years each – Tenant must give written notice (e.g., 6–12 months before expiration) – Often includes preset rent increases

Landlord Considerations: – Renewal exercise indicates tenant satisfaction – Can impact valuation and cap rate during resale

Verify renewal terms to gauge long-term viability and risk.

A sale-leaseback occurs when a business sells its real estate and immediately leases it back from the buyer.

Why Tenants Do It: – Unlock capital to reinvest in operations – Remove real estate from balance sheet

Why Investors Like It: – Strong tenant with vested interest in the location – Often structured as a new 15–20 year NNN lease

Due Diligence: – Verify the tenant’s financials and business model – Evaluate the rent amount vs. market comparable

Tenant default is rare with investment-grade tenants but should be planned for.

What Happens: – Lease default triggers legal remedies (e.g., eviction, collections) – Landlord may retain security deposit or pursue damages – Re-tenanting may require capital improvements or rent concessions

Prevention Tips: – Require personal or corporate guarantees – Favor tenants with strong financial history – Build reserves for vacancy or repair downtime

Recovery: Vacancy can range from 3–12 months depending on location and use case.

Valuation is based on the Net Operating Income (NOI) and prevailing cap rate for the asset class.

Valuation Formula: Value = NOI / Cap Rate

Example: $150,000 NOI ÷ 6.0% cap rate = $2.5 million value

Additional Factors: – Tenant credit rating and lease length – Location demographics – Lease structure (absolute vs. modified NNN) – Comparable sales in the market

Tip: Cap rate varies by tenant type, industry, and market.

Depreciation allows investors to reduce taxable income by writing down the property’s structure (not land) over time.

How It Works: – Commercial properties depreciate over 39 years (straight-line) – Land value is excluded from depreciation – Use cost segregation to accelerate depreciation on fixtures, HVAC, lighting

Tax Benefit: Depreciation shelters rental income and lowers current-year tax liability

Pro Tip: Depreciation is recaptured at sale unless offset via 1031 exchange.

Yes — buying NNN properties across state lines requires careful review of legal and tax implications.

Key Issues: – Title laws and transfer taxes vary by state – Registration or filing requirements for LLCs in other states – Local zoning or permitting rules may affect future use – Legal counsel in that state is advised

Recommendation: Use local counsel, title company, and CPA to avoid compliance issues

Escrow and title ensure the secure transfer of ownership and funds during an NNN transaction.

Escrow: – Neutral third party holds funds and documents – Releases funds upon completion of all closing conditions

Title: – Verifies legal ownership and any encumbrances (liens, easements) – Title insurance protects buyer from claims or defects

Tip: Choose experienced escrow officers and title reps familiar with commercial deals.

A purchase agreement outlines the terms and conditions of the NNN sale.

Key Terms: – Purchase price and earnest money deposit – Inspection and due diligence period (typically 15–30 days) – Closing date and conditions – Title, zoning, and environmental contingencies – Lease assignment and tenant estoppel certificate

Use an attorney or experienced buyer’s broker to review or draft contracts.

A team of professionals ensures a smooth NNN acquisition with reduced risk.

Key Advisors: – Buyer’s broker: Sources deals and negotiates on your behalf – Real estate attorney: Reviews contracts and lease terms – CPA: Provides tax guidance and 1031 exchange strategy – Title/escrow agent: Facilitates secure closing – Lender/banker: Structures financing (if applicable)

Tip: Surround yourself with advisors experienced in triple net properties.

A bondable NNN lease is the most absolute form of a triple net lease.

Features: – Tenant responsible for all expenses — no exceptions – Includes roof, structure, and parking lot maintenance – Lease continues even after casualty or condemnation

Benefits: – True passive income – No landlord interference required – Stable, long-term cash flow

Common with: – Investment-grade tenants – Sale-leaseback transactions

Pricing is based on income stream and risk level.

Primary Drivers: – Cap rate (based on tenant quality, lease term, location) – Lease structure (absolute NNN = higher price) – Market demand and interest rates

Formula: Price = Net Operating Income (NOI) ÷ Cap Rate

Additional Premiums: – National tenants command lower cap rates – Properties with 15+ year leases or CPI escalations are more valuable