Triple Net Lease (NNN) Investing

In a true triple net lease, the tenant pays base rent plus the three nets: property taxes, building insurance, and common area or structural maintenance, though the specific allocation of roof and structural responsibility varies by lease and should always be confirmed in the lease document rather than assumed from the label. Some leases described as triple net still leave the landlord responsible for roof and structure, which materially changes the risk profile, so reading the actual lease terms matters more than the marketing description.

Because a triple net property typically has a single tenant, your entire income stream depends on that one tenant continuing to pay rent and perform under the lease. Tenants with investment-grade credit ratings from agencies such as S&P or Moody's are viewed as lower risk of default, which is generally reflected in a lower cap rate, meaning a higher purchase price relative to income, compared to a similar property leased to a smaller regional or local operator.

Yes, a triple net leased property held for investment or business use is real property and qualifies as like-kind replacement for virtually any other type of investment real estate you are exchanging out of, whether that is a rental home, a multifamily building, or another commercial asset. The lease structure does not affect 1031 eligibility, since eligibility is based on how the real property is held and used, not on how the lease allocates operating expenses.

If a single tenant vacates or defaults, the property generates no rental income until it is re-leased or sold, and since the property was designed around one tenant's specific use, re-leasing can take longer and may require retrofitting for a new tenant's needs. This concentration risk is the primary tradeoff for the passive, low-management nature of NNN ownership, and it is why lease term remaining and tenant renewal history are important parts of underwriting.

Initial lease terms commonly range from ten to twenty-five years depending on the tenant and property type, often with multiple renewal options that extend the relationship further. Longer remaining lease terms generally support lower cap rates because they reduce near-term releasing risk, while properties with only a few years remaining on the lease typically trade at higher cap rates to compensate buyers for that uncertainty.