There is a reason the most boring lease in commercial real estate produces some of the most predictable income. It is called the triple net lease, written NNN, and once you understand it you start seeing it everywhere.
Here is the structure. In a triple net lease, the tenant pays base rent plus the three nets: property taxes, insurance, and maintenance. The landlord's rent comes in net of those costs, which is where the name comes from. The tenant carries the operating expenses, not the owner.
Contrast that with the two leases you have probably signed in your own life. A gross lease, common in office, is the opposite: the tenant pays one number and the landlord covers taxes, insurance, and upkeep out of that rent. A modified gross lease splits the difference, with some costs passed through and some absorbed by the owner.
Here is why investors love NNN. Your income is insulated from expense inflation. When property taxes jump or insurance premiums spike, and lately they have, the tenant absorbs it, not you. Your net rent is close to your actual return, with far less operational drag in between. For passive investors, that predictability is the entire appeal.
Here is why tenants accept it. They get control of the space they operate from, usually on a long single-tenant lease, and they would rather manage their own costs than pay a landlord to do it.
One thing to watch, because the word net gets oversold. Even in a triple net lease, the owner is often still responsible for the roof and structure, and you always carry the risk of vacancy and re-leasing when the term ends. The truly hands-off version is called an absolute NNN lease, where the tenant takes on essentially everything. Read which one you are actually buying.
Most of our IOS leases are net leases for exactly this reason. Low capex, the tenant maintains the yard, and the income that hits our investors is close to the income on paper.
What is your preference as an owner: the simplicity of NNN, or the upside of controlling the expenses yourself on a gross lease?
Wednesday Real Estate 101: The NNN lease
