Triple net leases get tossed around like they’re this magic bullet for passive income. You hear folks say, “It’s easy, you just collect checks,” and for the most part, sure, it can feel like that. But what I’ve seen, especially with newer investors, is that they either underestimate what’s under the hood or overthink the whole thing altogether.
The truth? It’s not that complicated. It’s also not that lucrative.
If you’re just getting into real estate or thinking about shifting from residential to commercial, triple nets are worth understanding. There’s nuance here.
Once you see the whole picture, you’ll make better choices, avoid rookie mistakes, and hopefully build something that fits what you’re really after.
Let’s start from the top.
A triple-net (NNN) parcel is generally a single-tenant property in which the tenant is responsible for three items: taxes, insurance, and maintenance.
In other words, they’re responsible for paying their own taxes (specifically property taxes), along with their own property insurance and liability insurance. Additionally, they’re accountable for maintaining their tract lighting, parking lots, sweeping, etc.
Essentially, everything associated with that property is the tenant's responsibility.
That’s what makes the model appealing. An investor receives a check once a month and generally does not have to do much more than that. It’s passive, and it’s predictable, at least on the surface.
That simplicity is what attracts many new investors. But what’s simple isn’t always straightforward, and a lease that looks clean at first glance can sometimes carry hidden risks if you don’t understand what to look for.
There’s this idea that NNN parcel deals are overly complex. They’re not. It’s just a very low return. And that’s really the point. If you're looking for high yield or value-add opportunities, triple nets probably aren’t where you’ll find them.
Instead, what you’re getting is stability. It’s a lower-risk, lower-yield investment. They’re not really out of reach for most people. They’re just expensive. They’re not necessarily expensive compared to other types of real estate, but the return you get on them is very small compared to different types of returns in commercial real estate.
Here’s an example: For the same $100,000 of cash flow, you could pay $2 million to get a cash flow for a triple net tenant, or you could pay $800,000 to get the same cash flow and just get a lot more bang for your buck.
That difference in capital efficiency matters, especially if you’re using leverage.
So, let’s say you decide triple-net parcels still make sense for you. Here’s how I’d go about getting started without getting in over your head.
If you're new to the space, your first move is pretty straightforward.
You’d have to go into the marketplace and find a triple-net opportunity, which starts by either going online or, ideally, hiring a broker to find one for you. There are platforms like Torey, but a broker who specializes in triple-net can narrow the field quickly. They'll filter for location, credit, price point, lease terms, basically the whole package.
Once you’ve identified a parcel, you need to decide whether you’re buying all cash or using financing. And if you’re using debt, you have to understand the relationship between your return and your interest rate.
You have to ask, is your debt positive leverage or negative leverage? In other words, is the cap rate or yield higher or lower than the interest rate of your debt?
Typically, you’ll need to bring about 25% equity on your own. The remaining funding would come from a bank, a CMBS lender, or an insurance company, depending on the size of the deal.
And don’t skip the legal setup. You absolutely have to create a legal structure to prevent liability. If somebody gets hurt or somebody gets shot or there is a casualty event, you do not want to be in the line of fire. That’s where an LLC comes in. It’s not just about being professional; it’s about protecting yourself.
One of the first things I look for is whether the parcel’s lease has rent growth. Personally, I like to see either a 2% increase in rent per year or a 10% bump every 5 years. You need some built-in appreciation, especially if you plan to hold for the long term.
You’ve got to understand what you’re getting from month one, and what you’ll be getting in year five, ten, or twenty. If there’s no rent growth, you’re falling behind.
You’d be surprised how many deals are labeled triple net but aren’t structured that way.
You need to determine whether any elements of the deal do not fit the triple-net structure.
For example, do major repairs to air conditioning, roofs, or parking lots still fall on the landlord? If that’s the case, it’s not truly NNN.
While not overly common, I’ve seen deals where landlords are stuck with capital expenses they didn’t expect. That is why you should always read the fine print. If the building’s roof or HVAC isn’t explicitly covered by the tenant, you’re not protected. Those expenses will fall on you, eating into your returns.
The biggest mistake you can make when purchasing a triple-net pad is overestimating the tenant's durability and viability.
This might sound harsh, but it’s the truth.
The lease can look great. The returns can pencil out. But if the tenant fails, everything falls apart.
Even with big brands, you’ve got to look under the hood. Ask yourself:
While it might be fun in the moment to invest in the flashy trends that are all over the headlines, the appeal will fade quickly, and the customer base will rapidly fade away.
Because of this, I always say I’ll take “boring” over “sexy” any day of the week.
Looks can be deceiving, even when it’s the sign for a store.
Just because the sign says Starbucks doesn’t mean it’s backed by Starbucks corporate. It could be a franchisee with weak financials. You have to know who’s on the lease, and most importantly, what kind of guarantee they bring.
You want boring. You want predictable. That’s the whole point.
For instance, a tenant like Chick-fil-A is attractive because of the consistency and reputation. But if the operator behind it doesn’t have the financial backing, that risk falls on you.
Triple net leases can be a solid long-term play. They offer a way to collect a steady income with minimal involvement, but that doesn’t mean they’re foolproof. You’ve got to know the tenant. You’ve got to read the lease. And you’ve got to structure the deal right.
If you’re someone looking for cash flow without the hassle of managing tenants and toilets, triple nets might be for you.
But like anything else in real estate, success comes from knowing what you’re buying and being honest about what you’re giving up in return.