Triple net investing
Triple net (NNN) investment, explained for buyers
What a NNN lease is, what it does for the landlord, where the risks sit, and how to judge a property before you buy. Written for investors, including those in a 1031 exchange.
What an NNN lease entails
Three costs move to the tenant
The “triple” in triple net refers to the three expenses the tenant takes on in addition to rent.
Property taxes
The tenant pays the tax bill on the property they occupy.
Insurance
The tenant carries the insurance the lease requires.
Maintenance
The tenant handles upkeep and repairs as the lease specifies.
Single, double and triple net leases compared
Who rents NNN property
Single-tenant NNN properties are common with national operators
You will find them occupied by businesses like these.
Why landlords like them
Benefits to the landlord
- Steady, passive income from rent
- Tenant covers taxes, insurance and maintenance
- Little to no property management
- Stability alongside higher-risk assets in a portfolio
Key lease elements
Read these four terms first
Most of a NNN investment’s risk and return is written into the lease.
Base rent and escalations
The starting rent, and how and when it steps up over the term.
Lease term and renewal options
How long the tenant is committed, and what options they hold to extend.
Use clauses
What the tenant may and may not do with the property.
Pass-through operating costs
Which operating costs the tenant reimburses or pays directly.
Tax benefits
Potential tax advantages of NNN ownership
Seven benefits investors commonly weigh. Which apply to you depends on your situation, so confirm them with a tax professional.
- Depreciation
- 1031 exchanges
- Interest deductions
- Expense pass-throughs
- A possible qualified business income deduction
- Long-term capital gains rates
- Estate planning advantages, including a step-up in basis
Single-tenant vs. multi-tenant
One lease, or several
The structure of the property changes both the work and the risk.
Disadvantages
What to weigh before you buy
NNN property is steady, not risk-free.
Dependence on one tenant
With a single tenant, your income rides on one business.
Limited rent growth
Annual increases are typically 1–2% [SOURCE NEEDED].
Illiquidity
A property can take time to sell, unlike a listed security.
Tenant credit and business health
Rent is only as dependable as the tenant behind it.
NNN vs. DST
Direct ownership or a Delaware Statutory Trust
Both are used for 1031 exchange replacement property. They trade control for diversification differently.
How to find the best NNN property
Four things to check
Our advice is buyer-side. We represent the investor, not the seller.
Resilient, investment-grade tenants
Look for strong operators with long leases.
Favorable lease terms
Check rent, escalations, term, renewals and cost pass-throughs.
Strong location
Population, demographics and traffic all matter.
Flexible property layout
A layout that could suit another tenant protects you if this one leaves.
Buyer representation
Talk to a buyer’s broker before you pick a property
The Triple Net Companies team represents buyers only. Tell us what you are trying to do and we will walk you through your options.