What Is Triple Net Lease?
What is a triple net lease? It's a lease where the tenant pays base rent plus property taxes, insurance, and maintenance. The landlord gets predictable income with almost no management—no roof repairs, no property tax bills, no insurance claims. Common in commercial real estate—think Walgreens, Dollar General, Starbucks. Cap rates typically run 5–7% for credit tenants. The trade-off: you're betting on the tenant. If they go dark or default, you own an empty building with no income. NNN is the ultimate passive commercial real estate play—minimal hands-on work, but single-tenant risk.
A triple net lease (NNN) is a lease structure where the tenant pays base rent plus all property taxes, insurance, and maintenance—the landlord receives net income with minimal operating expenses to manage.
At a Glance
- What it is: Lease where tenant pays base rent + property taxes + insurance + maintenance
- Formula: Tenant Pays = Base Rent + Property Taxes + Insurance + Maintenance
- Common in: Single-tenant retail—drugstores, banks, fast food, dollar stores
- Typical cap rates: 5–7% for credit tenants (Walgreens, Starbucks, national chains)
- Investor benefit: Predictable income, minimal management, landlord receives net NOI
Tenant Pays = Base Rent + Property Taxes + Insurance + Maintenance
How It Works
Triple net means three "nets"—taxes, insurance, maintenance—are passed through to the tenant. The landlord receives base rent minus only mortgage (if any). Everything else is the tenant's problem.
How it differs from gross and modified gross. A gross lease: tenant pays rent, landlord pays everything else (taxes, insurance, maintenance, utilities). A modified gross: tenant pays rent + some expenses (e.g., utilities, janitorial) but landlord pays taxes and insurance. Triple net: tenant pays rent + taxes + insurance + maintenance + typically utilities and CAM (common area maintenance). The landlord's NOI is essentially the base rent—minus only debt service if leveraged. That's why NNN properties trade at lower cap rates—the income is "clean" and predictable.
Who uses NNN. Single-tenant retail. Walgreens, CVS, Dollar General, Starbucks, banks, fast-food chains. These tenants want long-term locations (10–25 year leases) and are willing to take on building ownership responsibilities in exchange for control. They build to suit, sign a long lease, and the landlord collects rent. The tenant handles everything from HVAC to roof to parking lot repaving.
Cap rates and credit. Cap rates for NNN properties depend heavily on tenant credit. Investment-grade tenants (Walgreens, Starbucks, national banks) trade at 5–6% caps. Strong regional tenants: 6–7%. Weaker credit or short lease terms: 7–9%+. The lower the cap, the more the market trusts the tenant to pay. A 5.5% cap on a Walgreens means the market is paying a premium for that signature.
Lease structure. NNN leases often have initial terms of 15–25 years with options to renew. Rent escalations are built in—e.g., 10% every 5 years, or CPI-based. The tenant is responsible for all repairs, replacements, and compliance. Landlord's job: collect rent and maybe approve major capital improvements. That's it.
Real-World Example
Investor buys a Walgreens NNN property for $1.8M at a 5.5% cap rate in suburban Atlanta.
Mike is looking for passive income. He finds a freestanding Walgreens in Marietta, Georgia—built in 2018, 15-year lease signed in 2019, 10 years remaining. Base rent: $99,000/year ($8,250/month). Tenant pays taxes, insurance, maintenance, utilities. NOI to the landlord: $99,000 (minus only any landlord-side costs—in a true NNN, there are almost none). Purchase price: $1.8M. Cap rate: 5.5%.
He finances at 65% LTV—$1.17M loan at 6.25%, 25-year amortization. Debt service: ~$7,650/month = $91,800/year. Cash flow: $99,000 - $91,800 = $7,200/year on $630,000 down. That's 1.14% cash-on-cash—thin, but he's betting on appreciation and the fact that he does nothing. No tenant calls. No maintenance. No vacancy (Walgreens has 10 years left). He receives a wire every month. His only job: approve a roof replacement if Walgreens requests it (they pay; he just signs off). When the lease expires in 2029, he'll need to re-lease or sell. Walgreens has options—they often renew. If they don't, he's got a vacant retail box. That's the risk he's accepting for the passive income today.
Pros & Cons
- Minimal management—tenant handles taxes, insurance, maintenance, most repairs
- Predictable income—base rent is fixed; no operating expenses surprises
- Long lease terms—15–25 years common for credit tenants
- Lower vacancy risk during lease term—national tenants rarely default mid-lease
- Attractive to 1031 exchangers and passive investors seeking hands-off income
- Single-tenant risk—if tenant leaves, you own an empty building; re-leasing can take 12–24 months
- Credit dependency—tenant bankruptcy or store closure wipes your income
- Lower yields—5–6% caps mean you're paying for stability; cash-on-cash can be thin with leverage
- Lease expiration—when the lease ends, you're exposed to vacancy and re-leasing costs
- Limited upside—rent escalations are contractual; you can't force appreciation like value-add
Watch Out
- Tenant credit: A 7% cap on a local tenant vs. 5.5% on Walgreens reflects risk. If the tenant goes bankrupt, you're stuck with a dark building. Research tenant financials and store performance.
- Lease term remaining: A 2-year lease on an NNN property is risky—you're buying a short income stream. Prefer 10+ years for stability.
- Absolute NNN vs. modified: Some "NNN" leases still require landlord to pay roof or structure. Read the lease. True absolute NNN means tenant pays everything.
- Cap rate expansion: If interest rates rise, cap rates on NNN properties can expand. A 5.5% cap property today might trade at 6.5% in 5 years—your value drops even if rent is stable.
Ask an Investor
The Takeaway
A triple net lease shifts taxes, insurance, and maintenance to the tenant. You receive base rent with minimal management—the ultimate passive commercial real estate play. Cap rates run 5–7% for credit tenants like Walgreens and Starbucks. The trade-off: you're betting on one tenant. If they leave or default, you own an empty building. NNN works for investors who want hands-off income and can accept single-tenant risk. Diversify across tenants and lease terms—don't put everything in one NNN property.