Image of a Sprouts Farmers Market grocery store with beautiful stone architectural accents and palm trees surrounding the entrance in Scottsdale Arizona USA. Photo credit Michael Flight all rights reserved.



Image of a Sprouts Farmers Market grocery store with beautiful stone architectural accents and palm trees surrounding the entrance in Scottsdale Arizona USA. Photo credit Michael Flight all rights reserved.

Why should you prefer Net Lease Investment properties (also known as NNN or Triple Net) to value-add or multifamily deals?  The answer: “Doing value-add deals is like buying a job while Net Lease investing is the closest thing you can get to worry-free, passive income.”

Not to mention the risk/reward ratio of many value-add projects or the hassles of dealing with tenants and toilets that only yield a few extra dollars does not make sense in many cases.

It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.Robert Kiyosaki

A 100% occupied Single-Tenant Triple-Net (“STNL”) deal gives you immediate income and, if you choose the right tenant, you could be receiving hassle-free rent for the next 10 to 20 years. In fact, we still have Walgreens as a tenant where the original lease was signed in 1957. In 2010, we moved them to an outparcel with an additional 50-year lease extension.

The Tenant Pays All Expenses with Triple Net Leases

The terms “Net Lease,” “Net-Lease”, “Net-Net-Net,” “NNN,” and Triple Net are often used interchangeably. With an authentic Triple Net lease you the investor receive all net income (Net Operating Income = NOI) since the expenses are “netted” out of your gross income.

Related Resource: Beginner’s Guide to Triple Net Lease (NNN) Investing

This is why we named our Net Lease investing podcast the “Nothing But Net – NNN Show.” With Net Leases, there are no tenant calls, no dealing with trash and no worrying about property tax increases—you get Nothing But Net income!  See the example graphic below which shows the difference between a multifamily building income statement side-by-side with a Net Lease property income statement.


NNN Leases are Structured to Create Passive Income

Triple Net properties are the perfect investment for passive income, wealth protection and property appreciation from the built-in rent escalations written into the leases.

With a Triple Net lease, the tenant is responsible for not only paying the rent but they also pay some or all of the expenses for the property. This includes property taxes, property insurance (including liability insurance for the interior and exterior areas and property insurance for the building), and maintenance (roof, toilets, windows, doors, lighting, HVAC, parking lots and landscaping).

With a Single Tenant Triple Net lease—think McDonald’s, Starbucks, 7-11, CVS, etc.—the tenant will pay rent monthly for the property and either: (a) reimburse the property owner a monthly charge for its share of the property taxes, insurance and maintenance; or (b) pay all those expenses directly.

Related Resource: Single Tenant Net Lease Complete Guide

Net Leases “Net” Out the Expenses

There are three basic types of net leases (N, NN, or NNN), each defined by the range of expenditures paid for by the tenant. Each “Net” or “N” in a Net Lease is an expense that the tenant pays which is great news for you as a property investor.  These expenses include Real Estate Taxes, property and liability Insurance and Maintenance including the building, roof, HVAC and even landscaping and snow plowing.

The following is a simple chart for the types of Net Leases:

You can use the acronym T.I.M. to remember what each Net is for Triple Net: T for Taxes; I for Insurance; and M for Maintenance. When the tenant pays the rent and real estate taxes it is a Single Net lease (Net also known as N). When the lease requires the Tenant to pay the real estate taxes and insurance in addition to the rent it is a Double Net lease (Net Net also known as NN). If  the lease requires the Tenant to pay the real estate taxes, insurance and ALL the property maintenance including replacing roof and/or HVAC (Heating, Ventilation, Air Conditioning) in addition to the rent it is a Triple Net lease (Net Net Net also known as NNN).


Long-Term Leases Create High Occupancy Rates

As discussed above, Single-Tenant Triple-Net Lease (“STNL”) properties typically have long lease terms. In most cases, there is a minimum 10-year primary term with options to extend the lease. The tenant will be investing capital to build out a location either building the entire premises or extensive renovation of the interior of the building.

The tenant is spending capital to build brand equity because that location is like a giant bill-board advertising that tenant.  This is especially true with restaurants, fast food, retailers and service providers that depend on traffic passing by the location.  They want to make sure they control the location for many years since they have spent time marketing and advertising the location, plus their customers and employees are being served by the location.

Occupancy rate comparison chart of Single Tenant Net Lease properties, apartments, industrial, retail and office buildings from 2009 to 2020. Single Tenant Net lease investments consistently have the highest occupancy rate, offering safety, stability and security to investors.

Net Lease Properties are Like “Bonds Wrapped In Real Estate”

Another great benefit of owning Net Lease properties is the financial strength of the tenants. A Net Lease property investor does have to knock on doors and chase the tenant for rent. Major corporate tenants prefer to wire the money directly into your bank account, using automated clearing house (ACH) payments. With larger tenants, like McDonald’s, Starbucks, Walgreens or Longhorn Steakhouse, the rent is in your account within 3 to 5 days before the first of the month!

The best description of a Single-Tenant Triple-Net is the quote from Jonathan Hipp, Managing Director of the Avison Young US Net Lease Group: “A triple-net lease is really a corporate bond wrapped in real estate.”

And Ralph Cram, President of Envoy Net Lease Partners LLC (a real estate finance company that specializes in providing loans for single-tenant net-leased properties), describes them as “Bonds tied to a rock” because of their financial guarantee provided by the quality-credit tenants.

Net Lease property investment yields and tax benefits are better than corporate bonds or muni bonds and much less volatile than the stock or cryptocurrency markets. Triple Net properties are Main Street investments that beat Wall Street by a number of investment metrics.

McDonald’s NNN Property Investment vs McDonald’s Corporate Bonds

A comparison of investing in a McDonald’s Triple Net property (NNN investment property) versus investing in a McDonald’s Bond. A McDonal’s NNN property investment has a higher yield (cap rate in real estate investing terms), more income (Net Operating Income/NOI), deprecation benefits and lower taxable income than a McDonald’s bond investment, meaning an NNN property is much more advantageous and lucrative for investors. Real estate investing has many tax advantages NOT available to bond investors.

In the example above, using the current investment returns at the time, an investor can acquire a Single Tenant Net Lease McDonald’s real estate investment property in Tennessee (Tennessee has no state income tax for individuals) for a 5.65% cap rate versus theMcDonald’s Corporation 30 year bonds (August 9, 2023) with a 4.85% coupon rate.

When you compare the purchase of the McDonald’s Net Lease property for $1,000,000 with a Net Operating Income (NOI) producing a 5.65% return ($56,500 annual rent per year) versus purchasing their bonds with interest income of $48,500 per year. Plus the rent increases 10% every 5 years (6.22% yield on $62,150 years 6-10) so the blended rate over a 10 year hold period is 5.93%.

But Wait! That’s not all!! The US government wants investment in commercial real estate so the US Tax Code provides inducements through depreciation and deductions which shelter rental income from taxation. For tax purposes, nonresidential real property has a useful life of 39 years with depreciation at a rate of 2.654% annually on approximately 80% of the $1,000,000 purchase price ($800,000 x.02654 = $21,232/year). The Internal Revenue Service (IRS) allows you, the real estate investor, to deduct depreciation (the accounting provision for wear & tear) which shelters $21,232 per year from taxes.  And this tax advantage IS NOT available to bond investors.  Their interest income is taxed at the highest level on top of their regular income.

Triple Net Properties are Backed by Strong Corporate Guarantees

When acquiring an NNN property, you are not only investing in real estate; you are also investing in the company that has signed the lease. In addition to evaluating the location and condition of the property, you also need to underwrite the “credit” (financial strength and business prospects) of the tenant.

The creditworthiness of your tenant is why an Single-Tenant Net-Lease (STNL) investment property has many of the characteristics of buying a bond. The investment-grade (IG) ratings from Moody’s, Standard & Poor and Fitch are important factors to consider with a corporate lease backed by a brand-name company. These companies have income sources spread out over a number of locations or lines of business.

A corporate credit rating is like a FICO score for corporations; AAA is the best credit rating, but if a company is getting Cs, they are considered junk and most likely won’t have the capacity to occupy and pay rent for the full term of the lease.

This is a corporate rating chart, showing the individual credit score, Moody’s, Standard & Poor’s, Fitch and AM Best ratings for corporations to deduce whether they are investment grade or “junk”.

The great thing about having a Credit Tenant guaranteeing when using leverage (borrowing money from a bank or other financial institution) is that  the lender in many cases looks to the tenant’s creditworthiness and will not require a personal guarantee from you.  Triple Net properties guaranteed by a strong corporate tenant are some of the safest loans a bank can make and one of the most secure investments a real estate investor can find.

Triple Net Properties Make Ideal 1031 Exchange Investments

Many value-add apartment and multifamily investors build up considerable equity in their properties and decide to cash out to a more passive form of real estate investing.  Triple Net properties are the perfect 1031 Exchange for investors looking for Passive Real Estate Investments and obtaining Financial Freedom.

The US Internal Revenue (IRS) allows real estate investors to exchange or swap one investment property for another and defer capital gains tax. The properties need to be “like-kind,” meaning they can be any type of property in the US held by the investor for a trade or business, or for investment purposes.

For example, let’s say an investor has owned a 55-unit apartment building for 15 years and has paid down the mortgage, utilized allowable depreciation and benefited from natural appreciation. Selling the apartment building nets them a $5 million gain. They can use a 1031 exchange with a Wawa convenience store, not only saving money from capital gains tax but also benefiting from carefree, passive income paid rain or shine, both in and out of recessions.

Related Resource: 1031 EXCHANGES – SWAP UNTIL YOU DROP The Basics On Tax Savings With 1031

Sophisticated Investors Choose Net Lease Properties

Net Lease properties are a popular investment choice for high net worth individuals, family offices, institutional investors, hedge funds and private equity groups. They know that NNN properties are a reliable investment that preserves wealth and generates regular passive income.

Long term lease contracts with major corporations who pay all of the expenses also allow for long-term planning. If you have a 10-year lease with Amazon, Walmart, Aldi, McDonald’s or Starbucks, you can be pretty sure that they will be there paying rent all the way through its term. Also, since they pay the expenses, the property owner does not get any nasty surprises like a huge property tax increase or air conditioner compressor replacement expense.

Conclusion: NNN Properties are the Top Real Estate Investment Choice

As you can see, Net Lease properties have all the benefits of owning real estate without many of the common hassles associated with more management-intensive forms of property investment. Let’s face it, real estate investing should create passive income, not create an extra job to do.

With NNN investment properties, the tenants pay the rent and expenses, like real estate taxes and insurance. The tenants also maintain the properties, so you don’t have to call a plumber in the middle of the night or shovel snow during a blizzard. You get a long-term lease that maintains high occupancy levels, not the yearly turnover and expenses associated with apartment rentals. You get a corporate tenant who pays the rent like clockwork every month. As an example, when CVS or Walgreens are your tenant, the only drugs being sold are legal, not an unemployed chemistry teacher setting up a meth lab in your building.

Triple Net investment properties provide: 1) consistent monthly income; 2) little to no management responsibilities; 3) strong financial guarantees; 4) long-term leases; 5) tax benefits; 6) inflation protection; 7) wealth preservation; and 8) pride of ownership.

Don’t take unnecessary risks. Invest in stable, cash flowing assets with experienced professionals who can help you achieve true financial freedom. For more information about worry free Triple Net property investing schedule a call to speak with one of our investment professionals CONTACT

For more information contact: 

Michael Flight

Co-Founder & Chief Strategy Officer of Invest On Main

CEO & Co-Founder of Liberty Real Estate Fund

Co-Founder of Blockchain Real Estate Summit

Michael Flight was named the Godfather of Blockchain Real Estate by Forbes Crypto.  Michael achieved that distinction by co-founding Liberty Real Estate Fund, the World’s First Net Lease Security Token Fund, creating the Blockchain Real Estate Summit. More recently co-founding Invest On Main ( the Real Estate & Alternative Asset marketplace of the future and AcceleratedLaw a faster, cheaper way to create and tokenize securities offerings! 

Michael is a real estate entrepreneur and real estate tokenization pioneer who is an expert in retail real estate investment, redevelopment and real estate on the blockchain.  He started his commercial real estate career in 1985, and then co-founded Concordia Realty Corporation in 1990, which continues to partner with some of the world’s most well-known banks, insurance companies, hedge funds and institutional investors in many successful investments.

DISCLOSURES, LEGAL AND TAX COUNSEL: Liberty Real Estate Fund and Concordia Equity Partners LLC. (collectively “LibertyFund”) and their affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction or undertaking. LibertyFund highly encourages individuals and investors to seek the counsel of a qualified attorney as well as seek the counsel of a tax professional or Certified Public Accountant (CPA) to determine if there are any potential tax liabilities or consequences as the result of anything contained herein.  NO GUARANTEE: All users of this website should understand there are NO GUARANTEES of any success, outcome or profitability of any transaction or undertaking, expressed or implied by LibertyFund or any of its members, shareholders, officers or affiliates and will NOT be liable for any financial or other losses or damages incurred as a result of any undertaking. Go HERE to view complete DISCLOSURES.

Get Our Content For Free Via Email