[Triple Net Lease Investing](/blog/nnn-lease-investing-guide): Complete Guide to NNN Properties

Triple net lease (NNN) properties represent one of the most passive forms of [real estate investing](/blog/brrrr-strategy-guide). With tenants responsible for virtually all property expenses, NNN investments offer predictable income streams with minimal landlord responsibilities—making them attractive for investors seeking truly hands-off real estate exposure.

This comprehensive guide covers everything you need to know about NNN investing, from how these leases work to evaluating deals and understanding the risks.

What Is a Triple Net Lease?

A triple net lease (NNN) is a commercial lease agreement where the tenant pays base rent plus all property expenses: property taxes, building insurance, and maintenance (the three "nets").

The Three Nets

Net 1: Property Taxes

• Tenant pays all real estate taxes
• Landlord passes through tax bills
• Tenant reimburses landlord or pays directly

Net 2: Insurance

• Tenant pays building insurance premiums
• Including [liability coverage](/blog/homeowners-insurance-complete-guide)
• Sometimes landlord's loss of rent insurance

Net 3: Maintenance

• Tenant responsible for all maintenance and repairs
• Interior and exterior
• Structural and non-structural
• Roof, parking lot, HVAC, everything

Result: Landlord receives consistent "net" income with virtually no operating expenses.

How NNN Differs from Other Lease Types

Gross Lease:

• Tenant pays only rent
• Landlord pays all expenses
• Typical for multi-tenant office

Modified Gross (MG):

• Tenant pays some expenses
• Landlord pays others
• Various configurations possible

Double Net (NN):

• Tenant pays taxes and insurance
• Landlord pays maintenance
• Less common

Triple Net (NNN):

• Tenant pays everything
• Landlord's only expense: mortgage payment
• Maximum passivity

Absolute NNN vs. Standard NNN

Standard NNN:

• Tenant pays operating expenses
• Landlord responsible for structural/roof/parking lot
• Landlord retains some capital expenditure risk

Absolute NNN (Bondable):

• Tenant responsible for EVERYTHING
• Including roof, structure, parking lot
• Even if building burns down, tenant rebuilds
• Landlord has zero expenses
• Most passive but harder to find

Types of NNN Properties

Single-Tenant NNN

Characteristics:

• One tenant
• Free-standing building
• Purpose-built for tenant
• Long-term lease (10-25 years)

Common tenants:

• Fast food (McDonald's, Chick-fil-A)
• Pharmacies (Walgreens, CVS)
• Banks
• Gas stations/convenience stores
• Dollar stores
• Medical offices

Benefits:

• Simple management
• Credit tenant (often)
• Predictable income
• Easy to understand

Risks:

• Single tenant dependency
• Re-leasing risk when lease expires
• Purpose-built may be hard to re-tenant

Multi-Tenant NNN

Characteristics:

• Multiple tenants (strip centers, office buildings)
• Shared common areas
• CAM charges
• More like traditional commercial

Less common for pure NNN structures, but exists in:

• Retail centers with NNN leases
• Office buildings with NNN tenants
• Industrial parks

Benefits:

• Diversification across tenants
• Reduced single-tenant risk

Drawbacks:

• More management involved
• CAM reconciliations
• Tenant turnover
• Less passive than single-tenant

By Property Type

Retail NNN:

• Restaurants (QSR)
• Pharmacies
• Dollar stores
• Auto parts
• Banks

Office NNN:

• Medical offices
• Professional offices
• Government tenants

Industrial NNN:

• Manufacturing facilities
• Distribution centers
• Warehouse space

Specialty NNN:

• Car washes
• Gas stations
• Self-storage (some)
• Daycare centers

How NNN Investing Works

The Investment Structure

Typical deal:

1. Investor purchases property
2. Tenant operates business under NNN lease
3. Tenant pays rent monthly
4. Tenant pays all property expenses
5. Investor receives net rent (minus mortgage)
6. Minimal landlord involvement

Example:

• Purchase price: $2,000,000
• Annual rent: $150,000
• Lease: 15 years
• Tenant: National pharmacy chain
• Monthly income: $12,500
• Landlord expenses: ~$0 (tenant pays all)

Lease Terms

Length:

• 10-25 years typical
• Fast food: Often 20+ years
• Retail: 10-20 years
• Office: 5-15 years

Rent Increases:

• Fixed increases (e.g., 2% annually)
• Periodic bumps (e.g., 10% every 5 years)
• CPI adjustments
• Flat (less common)

Options:

• Multiple renewal options (typically 5 years each)
• Rent terms for options specified upfront
• Tenant discretion to exercise

Example lease structure:

• Initial term: 20 years
• Starting rent: $150,000/year
• Increases: 10% every 5 years
• Options: Four 5-year options
• Potential total term: 40 years

Income Predictability

Known cash flows:

• Rent schedule defined for entire lease
• Minimal expense volatility
• Easy to project returns
• Suitable for financial planning

Example 20-year projection:

• Years 1-5: $150,000/year
• Years 6-10: $165,000/year
• Years 11-15: $181,500/year
• Years 16-20: $199,650/year

Benefits of NNN Investing

1. Passive Income

Minimal involvement:

• No property management needed
• No maintenance calls
• No tenant coordination
• Tenant handles everything

Ideal for:

• Busy professionals
• Out-of-state investors
• Retirees seeking income
• 1031 exchange buyers

2. Predictable Cash Flow

Stable income:

• Long-term leases lock in rent
• Scheduled rent increases
• No surprise expenses
• Easy budgeting

Financial planning:

• Retirement income
• Debt service coverage
• Supplement other income

3. Credit Tenants

Corporate guarantees:

• National/regional chains
• Investment-grade credit ratings
• Financial stability
• Lower default risk

Examples:

• S&P rated corporations
• Franchise operators backed by corporate
• Government tenants
• Established businesses

4. Low Operating Expenses

Expense responsibility:

• Tenant pays taxes
• Tenant pays insurance
• Tenant maintains property
• Landlord's only cost: mortgage (if any)

Result: High profit margins

5. Inflation Protection

Rent escalations:

• Built-in increases
• CPI adjustments (some leases)
• Purchasing power maintained
• Growing income stream

6. Depreciation Benefits

Despite tenant-paid expenses:

• Full depreciation deduction available
• Typically 39-year schedule (commercial)
• [Cost segregation](/blog/depreciation-real-estate-guide) possible
• Tax benefits similar to other real estate

7. Financing Advantages

Lender appeal:

• Credit tenants reduce risk
• Stable cash flow
• Strong DSCR
• Favorable loan terms

HonestCasa's DSCR loans work excellently for NNN properties—underwritten on the strong, predictable property income rather than personal finances.

Risks and Drawbacks of NNN Properties

1. Tenant Credit Risk

Tenant bankruptcy:

• Business failure
• Retail apocalypse concerns
• Industry disruption
• Economic downturns

Example concerns:

• Retail chains closing stores
• Restaurant concepts falling out of favor
• Industry-specific challenges

Mitigation:

• Choose strong credit tenants
• Diversify across properties/tenants
• Research industry health
• Corporate guarantee requirements

2. Re-Tenanting Risk

Lease expiration challenges:

• Purpose-built properties hard to re-lease
• May require significant capital
• Location may not suit other uses
• Rent may decrease

Example:

• Custom-built fast food restaurant
• Specific kitchen layout
• Brand-specific design
• Limited alternative tenant pool

3. Lower Returns

Trade-off for passivity:

• Cap rates: 4-7% typical
• Lower than apartments or other commercial
• Premium for convenience and security
• Sacrifice return for stability

Comparison:

• NNN retail: 5-6% cap rate
• Multifamily: 5-8% cap rate
• Value-add multifamily: 7-10% cap rate

4. Illiquidity

Selling challenges:

• Specialized buyer pool
• 1031 exchange buyers (often)
• Market timing important
• Transaction costs significant

5. Location Risk

Property-specific:

• Tenant leaves, location may not support replacement
• Demographic changes
• Traffic pattern changes
• Economic decline in area

Due diligence critical:

• Strong locations important
• Multiple tenant possibilities
• Growing areas preferred

6. Lease Structure Risk

Long-term commitments:

• Below-market rent if inflation exceeds escalations
• Locked into terms
• Limited ability to raise rent

7. Hidden Expenses

Even in NNN leases:

• Landlord may need to contribute to TI for new tenant
• Roof/structure in some leases
• Lease commissions upon re-tenanting
• Property management (even minimal)

Evaluating NNN Investment Opportunities

Key Metrics

Cap Rate:

• Formula: NOI ÷ Purchase Price
• NNN range: 4-7% typically
• Lower = less risk (credit tenant, location)
• Higher = more risk

Cash-on-Cash Return:

• Annual cash flow ÷ Cash invested
• Accounts for financing
• Target: 6-10% depending on leverage

Debt Service Coverage Ratio (DSCR):

• NOI ÷ Annual Debt Service
• Lenders want 1.25+
• Higher = safer
• NNN properties often have strong DSCR

Rent to Sales Ratio:

• For retail tenants
• Rent ÷ Gross Sales
• Indicates tenant health
• Under 10% generally safe

Tenant Analysis

Credit Quality:

• S&P or Moody's rating
• Financial statements
• Public company filings
• Industry position

Corporate Guarantee:

• Is parent company guaranteeing lease?
• Or just franchisee/subsidiary?
• Corporate guarantee = much stronger

Business Health:

• Sales trends
• Industry outlook
• Competitive position
• Store performance

Lease Terms:

• How much time remaining?
• Rent escalations adequate?
• Options favorable?
• Early termination clauses?

Location Assessment

Trade Area:

• Population density
• Demographics
• Income levels
• Traffic counts

Accessibility:

• Visibility
• Ingress/egress
• Parking
• Traffic patterns

Competition:

• Similar businesses nearby
• Market saturation
• Barriers to entry

Growth Prospects:

• Area development
• Economic trends
• Job growth
• New construction

Property Condition

Even though tenant maintains:

• Roof age and condition
• Structural integrity
• Parking lot condition
• Major systems (HVAC, electrical, plumbing)

Why it matters:

• At lease end, may need updates to attract tenant
• Some leases have landlord structural responsibility
• Affects resale value

Lease Analysis

Read the entire lease:

• Who pays for what (truly NNN?)
• Rent escalations schedule
• Option terms
• Assignment/subletting provisions
• Default remedies
• Force majeure
• Termination rights

Red flags:

• Early termination options
• Co-tenancy requirements (retail)
• Kick-out clauses based on sales
• Tenant maintenance caps

NNN Investment Strategies

Strategy 1: Credit Tenant NNN

Focus:

• Investment-grade tenants
• Fortune 500 companies
• Government tenants

Profile:

• Ultra-safe
• Lower returns (4-5% cap rates)
• Maximum passivity
• Minimal risk

Best for:

• Conservative investors
• Retirement income
• Large 1031 exchanges

Strategy 2: Regional/Franchise NNN

Focus:

• Regional chains
• Strong franchisees
• Emerging brands

Profile:

• Moderate risk/return
• 5-6.5% cap rates
• Good balance
• Due diligence on operator

Best for:

• Balanced investors
• Diversification
• Moderate returns

Strategy 3: Secondary Market NNN

Focus:

• Good tenants in smaller markets
• Higher cap rates
• Less liquidity

Profile:

• Higher yields (6-8%)
• Re-leasing risk higher
• Location matters more

Best for:

• Yield-focused investors
• Long-term hold
• Accept moderate risk

Strategy 4: Sale-Leaseback Participation

What it is:

• Business sells property
• Leases it back long-term
• You buy from business

Benefits:

• Tenant has vested interest
• Usually good locations
• Business gets capital

Risks:

• If business struggles, so does property
• Research business thoroughly

Strategy 5: NNN Portfolio

Build diversification:

• Multiple properties
• Different tenants
• Various markets
• Spread risk

Example portfolio:

• Walgreens (California)
• Dollar General (Texas)
• Fresenius Medical (Florida)
• 7-Eleven (Arizona)

Benefits:

• Reduced single-asset risk
• Diversified income
• Geographic spread

Financing NNN Properties

Traditional Commercial Loans

Terms:

• 20-30 year amortization
• 5-10 year fixed rates
• 25-35% down payment
• Rates: 6-8% range

Qualification:

• Based on property income (DSCR)
• Personal financials reviewed
• Credit score important

DSCR Loans

Ideal for NNN:

• Underwritten on property cash flow
• NNN properties have strong DSCR
• Predictable income = lender confidence

HonestCasa DSCR Loans:

• Qualify based on rent, not personal income
• Perfect for NNN investors
• Competitive rates
• Streamlined process

1031 Exchange Common

Why NNN fits 1031:

• Passive (meets "like-kind" use)
• Easy to manage during exchange period
• Predictable (less risk after exchange)
• Many sellers are also 1031 buyers

1031 considerations:

• Equal or greater value
• Timeline manageable
• Backup properties wise (in case deal falls through)

All-Cash Purchases

Benefits:

• Maximum monthly income
• No debt service
• Simplified ownership
• Strong negotiating position

Considerations:

• Lower total returns (no leverage)
• Capital tied up
• Opportunity cost

HELOC for Down Payment

Strategy:

• Use HELOC from existing property
• Fund NNN down payment
• Keep cash reserves

HonestCasa HELOCs:

• Access equity from current properties
• Flexible capital for new NNN purchases
• Competitive rates

Tax Considerations

Depreciation

Commercial property:

• 39-year straight-line
• Can use cost segregation
• Offset rental income

Benefits retained:

• Even though tenant pays expenses
• Full depreciation available
• Reduces taxable income

1031 Exchanges

NNN perfect for:

• Like-kind property
• Investment use clear
• Passive management
• Easy to hold during exchange

Common scenarios:

• Exit management-intensive property → NNN
• Consolidate multiple properties → single NNN
• Portfolio rebalancing

Passive Activity

Generally passive:

• Rental real estate
• NNN especially passive
• Losses subject to passive loss rules

Exception:

• Real estate professional status
• Short-term rentals (if applicable)
• Material participation

Due Diligence Checklist

Lease Review

• ✓ Full lease (all amendments)
• ✓ Remaining term
• ✓ Rent escalations
• ✓ Options and terms
• ✓ Truly NNN (expense allocation)
• ✓ Assignment rights
• ✓ Guarantees

Tenant Research

• ✓ Credit rating
• ✓ Financial statements
• ✓ Industry outlook
• ✓ Store/unit sales (if available)
• ✓ Lease compliance history

Property

• ✓ Phase I environmental
• ✓ Inspection report
• ✓ Roof condition/age
• ✓ Parking lot condition
• ✓ Major systems
• ✓ ADA compliance
• ✓ Zoning compliance

Location

• ✓ Demographics
• ✓ Traffic counts
• ✓ Competition
• ✓ Growth trends
• ✓ Access/visibility

Financial

• ✓ Rent comps
• ✓ Tax assessment
• ✓ Insurance quotes
• ✓ Title review
• ✓ Survey
• ✓ Estoppel certificate

Related Articles

• NNN Lease Tenant Quality Analysis: How to Evaluate Credit and Reduce Default Risk
• [Commercial Mortgage Guide: Financing Office, Retail, and Multi-Family Properties](/blog/commercial-mortgage-guide)
• Commercial vs. Residential Real Estate Investing: Which Is Right for You?
• [Dscr Loan Bowling Alley](/blog/dscr-loan-bowling-alley)
• [Dscr Loan Cannabis Property](/blog/dscr-loan-cannabis-property)

Frequently Asked Questions

What is a [good cap rate](/blog/cap-rate-explained) for NNN properties?

Cap rates for NNN properties typically range from 4% to 7%, depending on tenant credit quality, location, and lease term. Investment-grade credit tenants (Walgreens, CVS, McDonald's) trade at 4-5% cap rates. Regional franchises may be 5.5-6.5%. Secondary markets or weaker credits might be 6-7%+. Lower cap rates reflect lower risk—you're paying a premium for security and passivity.

Are triple net leases truly passive?

NNN leases are among the most passive real estate investments. The tenant handles all maintenance, repairs, taxes, and insurance. Your involvement is typically limited to: collecting rent, reviewing annual expense reconciliations (if any), and coordinating lease renewals. However, you still own the property and have responsibilities like mortgage payments, finding replacement tenants if needed, and major capital expenditures in some lease structures.

What happens when the lease expires?

This is the biggest risk with NNN investing. Options include: (1) tenant exercises renewal option at pre-negotiated terms, (2) negotiate new lease with existing tenant, (3) find new tenant (may require significant capital for tenant improvements and downtime), or (4) sell the property. Strong locations with flexible buildings have more options. Purpose-built properties may struggle to attract replacement tenants.

Is NNN investing good for retirement income?

Yes, NNN properties are excellent for retirement income due to: predictable monthly payments, minimal management responsibilities, long-term cash flow visibility, and stable tenants. Many retirees use 1031 exchanges to move from management-intensive apartments into hands-off NNN properties. However, ensure you understand lease expiration timing and have contingency plans.

How do I know if a tenant is financially strong?

Research tenant credit through: (1) S&P or Moody's credit ratings (for public companies), (2) public financial filings (10-K, 10-Q for public companies), (3) Dun & Bradstreet reports, (4) franchise disclosure documents (for franchisees), and (5) requesting financial statements directly. Also, evaluate whether there's a corporate guarantee or if only the franchisee/subsidiary is on the lease.

Can I use a DSCR loan for NNN properties?

Absolutely! NNN properties are ideal for DSCR loans because they have strong, predictable income that easily covers debt service. HonestCasa's DSCR loans are underwritten based on the property's cash flow (rent), not your personal income. With minimal expenses and stable tenants, NNN properties typically have excellent DSCR ratios (often 1.5-2.0+), making qualification straightforward.

Should I worry about the "retail apocalypse"?

The retail apocalypse primarily affects enclosed malls and big-box retailers. Well-located NNN properties with essential services (pharmacies, dollar stores, quick-service restaurants, medical) have remained resilient. Focus on: strong locations, necessity-based tenants, convenient access, and businesses with omnichannel strategies. Avoid struggling retail concepts or marginal locations.

Can I do cost segregation on NNN properties?

Yes! Even though the tenant pays operating expenses, you still own the property and can take depreciation deductions. Cost segregation studies can accelerate depreciation on shorter-lived components (parking lots, landscaping, certain interior elements), creating larger early-year deductions. This is especially powerful if you're a real estate professional or have other passive income to offset.

---

Triple net lease investing offers a unique combination of passive income, predictability, and tax benefits that appeals to many real estate investors. While cap rates are lower than more active investments, the trade-off is minimal management, stable cash flow, and peace of mind.

Whether you're looking to simplify your portfolio, generate retirement income, or complete a 1031 exchange, NNN properties deserve consideration. With financing options like DSCR loans and HELOCs from HonestCasa, acquiring quality NNN properties is accessible to investors who value the stability and passivity these investments provide.