Triple-Net Leases 101

For many new real estate investors, the dream is simple: buy a property, collect steady rent checks, and avoid the daily headaches of maintenance calls and tenant issues.

That is the appeal of single-tenant, triple-net (NNN) leases. In these arrangements, one company rents the entire building and covers nearly all operating costs. Often described as “set-it-and-forget-it” investing, NNN leases offer real advantages, but also carry risks and tax considerations that investors shouldn’t overlook.

Why triple-net leases seem so attractive

In a true triple-net lease, the tenant pays for property taxes, insurance, and nearly all maintenance and repairs. As the property owner, you are largely removed from day-to-day management and focused on collecting rent.

These leases often span 10 to 20 years, with scheduled rent increases built in, making them attractive for long-term cash flow or retirement planning. Many tenants are national brands like fast-food chains, pharmacies, or banks, offering perceived stability and financial strength.

The single point of failure: What could go wrong

Despite their simplicity, NNN leases come with concentrated risk: 

• Your income hinges entirely on one tenant. If they default, close the location, or go bankrupt, your revenue could vanish overnight, leaving you responsible for property taxes, insurance, and loan payments until you can secure a new tenant. 
• Another drawback is being locked into the lease terms. If local market rents rise significantly, you can’t increase your rent to match current market rates because your lease terms are fixed. While predictable income is valuable, it may also limit your upside. 
• While tenants typically handle maintenance, they may defer costly repairs, especially toward the end of the lease. When they vacate, you could face costly updates before re-leasing the property.

The often-overlooked tax drawback

NNN leases may also limit your eligibility for the Section 199A deduction, which allows certain real estate investors to deduct up to 20% of rental income. To qualify, the IRS generally requires a certain level of active involvement in managing the property.

Because NNN leases are designed to be mostly passive, this income often fails to qualify for the deduction, meaning the money saved on management may instead be lost to higher taxes. Understanding the after-tax return is essential — and worth a conversation with your tax advisor.

Key questions to ask before investing

Before purchasing an NNN property, remember you are buying an income stream tied to a specific tenant in a specific location. Ask: 

• Who is the tenant? Is the lease backed by a national brand or a local franchisee? What’s their financial strength? 
• What are the lease terms? Is it a true “absolute” triple-net lease that includes structural and roof repairs? Are rent escalations built in to keep pace with inflation? 
• Is the location positioned for long-term success? Consider whether the property is in a growing area with strong demographics, economic stability, and future development potential. A well-located asset increases the likelihood of tenant retention and ease of re-leasing. 
• Is the property flexible? Could another tenant easily occupy the space if needed, or is the building highly specialized and difficult to repurpose? 
• What is the tax impact? Will your level of involvement affect your eligibility for deductions like Section 199A? Understanding the after-tax return is essential.

How CLA can help

NNN leases can offer stable, mostly passive income, but they are not without risks. From tenant reliability and lease structure to tax implications and property flexibility, understanding the full picture is key.

CLA’s real estate professionals can help you evaluate opportunities with clarity, offering lease analysis, tenant due diligence, and tax planning to support confident, informed decisions.