Guides

Triple Net Lease NNN

A triple net lease, generally abbreviated NNN, is a lease structure where the tenant generally agrees to pay, in addition to base rent, the three major property level operating costs, real estate taxes, building insurance, and common area or property maintenance, either directly or through reimbursement to the landlord. This is generally the most landlord-favorable lease structure on the net lease spectrum, since it shifts most variable operating cost risk away from the owner and onto the tenant, leaving the landlord with a comparatively predictable, largely passive rent stream. NNN leases are generally common with single tenant retail properties such as drugstores, quick service restaurants, dollar stores, auto parts stores, and convenience stores with fuel, as well as with certain industrial and office properties leased to a single creditworthy occupant. Lease terms on NNN retail properties generally run ten to twenty five years at initial signing, often with scheduled rent increases, sometimes called rent bumps, built in at fixed intervals, and often include multiple renewal option periods the tenant can exercise. Tenant credit quality generally matters enormously in NNN investing, since the landlord's income stability depends heavily on the tenant's ability to keep paying rent and covering the underlying operating obligations, which is why NNN investors and brokers generally pay close attention to whether a tenant carries an investment grade credit rating, is a well established regional or national brand, or is a smaller, less established operator carrying more inherent risk. Because a NNN property generally requires limited ongoing landlord involvement compared to multifamily or full service office property, it is generally one of the most popular replacement property types for 1031 exchange investors who are looking to reduce active management responsibilities while remaining in real estate. San Diego, CA investors exchanging out of a management-intensive property, such as an aging multifamily building, frequently look at NNN properties nationally rather than only locally, since strong NNN opportunities with quality credit tenants are generally available across many metro areas and the exchange's forty five day identification window generally rewards casting a wide geographic net. Investors seeking an even more passive version of NNN exposure sometimes look at DST offerings built around portfolios of NNN properties, which can generally preserve 1031 eligibility while removing individual landlord responsibilities entirely, though a DST interest may be a security and we do not sell securities, only provide introductions to licensed providers. Educational content only. This is not tax, legal, or investment advice.