Real estate income
Triple-Net Lease Properties
A single tenant on a long lease pays the rent and also the taxes, insurance and maintenance — leaving the landlord with something close to a coupon.
In a triple net lease the tenant pays base rent plus property taxes, insurance and maintenance directly, so the landlord's income is close to a contractual payment stream with minimal operating involvement. These are usually single-tenant buildings — pharmacies, quick-service restaurants, dollar stores, auto parts, banks and distribution facilities — on leases running many years with fixed escalations. Value depends almost entirely on tenant credit, lease term and escalations, and the residual value of the real estate.
Rent and lease payments Semi-passive
The labels above place this income type before you read a word. The first is the mechanism — how the money actually reaches you, whether by lending it out, owning a slice of something, renting an asset, licensing a right, selling an option or owning a business somebody else runs. The second says whether the income keeps arriving on its own once it is running, or whether it needs work from you to keep coming. Both are descriptions of how the thing is built, not verdicts on it.
How it works
A triple net lease shifts the three major ownership costs — property taxes, building insurance, and maintenance — from the landlord to the tenant, on top of a base rent payment. The landlord collects rent and, in principle, does little else. Variants sit on a spectrum: a double net lease leaves the landlord with some obligation, often roof and structure, while an absolute net or bond lease leaves the landlord with no obligations at all, including the roof and the structural frame.
Leases typically run ten years or longer, with tenant renewal options, and rent steps up by a fixed percentage at set intervals or at each renewal. The most common way these assets come to market is the sale-leaseback: an operating company sells the real estate under its store or facility and simultaneously signs a lease to keep operating there, converting owned real estate into cash on the corporate balance sheet and a rent obligation.
The credit question is who actually signs the lease. A recognizable brand on the building can mean a full corporate guarantee from an investment-grade parent, or it can mean a franchisee entity with a single-purpose LLC and no other assets — the building looks the same, the obligor does not. A large share of buyers in this market are executing 1031 exchanges, which supports pricing for small, clean, single-tenant assets nationally.
What it pays
Pricing is quoted as a cap rate: annual contractual rent divided by purchase price. The spread over a comparable-duration risk-free rate compensates for tenant credit risk and the uncertainty of what happens at lease expiration. Investment-grade corporate-guaranteed leases price at the tightest cap rates; franchisee-operated units and sub-investment-grade tenants price at wider spreads for the same building type.
Escalations are the only source of growth. Without a built-in step-up, the rent is fixed for the lease term and loses real value to inflation every year it is not increased. Remaining lease term matters as much as the rent itself — a building with three years left on the lease prices closer to the value of the vacant structure than to a stabilized income stream, because a buyer is really underwriting re-leasing risk.
Because the tenant bears taxes, insurance, and maintenance, net operating income sits very close to gross rent. That absence of expense variability is the structural reason the income behaves predictably from year to year, at least while the tenant is paying.
Costs and taxes
Ongoing landlord costs during the lease term are limited to lease administration and monitoring — confirming the tenant is actually paying the taxes and insurance it is contractually obligated to pay, since a lapse can create liability or a lien against the owner. The landlord also carries deferred risk on physical condition: a tenant can meet its maintenance obligation minimally and hand back a building that needs significant capital work at lease end.
For US tax purposes, the property depreciates over 39 years as non-residential real property, and cost segregation studies can still separate site improvements — parking, signage, landscaping — into shorter depreciation lives even on a net-leased asset. Rental income is taxed as ordinary income, and because there are few offsetting operating expenses to deduct, depreciation is the primary shelter against that income.
Sale generates depreciation recapture taxed as ordinary income up to a statutory rate, plus capital gains tax on remaining appreciation. A 1031 exchange into another like-kind property defers both, which is a significant part of why this asset class trades as actively as it does.
Liquidity and time commitment
Among direct commercial real estate formats, single-tenant net lease is the most transactable for a small investor: a national brokerage market exists specifically for these assets, and a steady pool of 1031 exchange buyers provides consistent demand. It is still illiquid compared to securities — a sale takes months, not days — but it is far more liquid than a multi-tenant office building or an operating apartment complex.
Time commitment during the lease term is very low, which is precisely why the sector is marketed toward retirement-stage owners and exchange buyers seeking a low-effort replacement for a more management-intensive property they just sold. That low-effort period ends abruptly at lease expiration, when the owner is suddenly responsible for taxes, insurance, and maintenance on what may be a vacant, purpose-built structure.
For investors who want the income stream without direct ownership, net lease REITs hold diversified portfolios of these leases and trade with daily liquidity. Delaware Statutory Trusts package individual net-leased properties into fractional interests that still qualify for 1031 exchange treatment, lowering the capital threshold without giving up the tax deferral.
How it goes wrong
The central risk is tenant credit failure. A bankrupt tenant can reject the lease in bankruptcy court, and the landlord's claim for the remaining rent is capped by statute, typically recovering a fraction of what was owed. The building is often purpose-built for one use — a former drive-through pharmacy or a bank branch with a vault — and converting it for a different tenant can cost more than the building is worth.
Lease expiration without renewal is the other structural failure point: income drops to zero while taxes, insurance, and maintenance revert to the owner all at once. Fixed escalations that run below inflation mean real income erodes steadily over a long lease even when the tenant pays every dollar on time.
A common investor error is paying for the brand rather than the real estate — when the tenant vacates, only the location and the building remain, and their standalone value may be well below what was paid. Finally, because contractual rent behaves like a bond coupon, cap rates expand when long-term interest rates rise, which lowers the value of the property independent of anything the tenant does.
What to remember
- Rent comes from a single tenant who also pays taxes, insurance, and maintenance directly, leaving the landlord with something close to a contractual coupon.
- Value depends on tenant credit quality, remaining lease term, and escalation structure — not on active property management.
- Cap rates move inversely with interest rates and directly with tenant credit risk, so the asset carries bond-like price sensitivity.
- Depreciation over 39 years, with cost segregation on site improvements, is the main tax shelter against otherwise ordinary rental income.
- The risk is concentrated at the edges: a tenant bankruptcy mid-lease, or a vacant, single-purpose building at lease expiration.
- Net lease REITs and 1031-eligible Delaware Statutory Trusts offer the same income mechanism with smaller capital requirements and more liquidity than a direct freestanding property.
This page explains how the income type works, which does not change from week to week, so it deliberately carries no rate and no price. The links below go to the pages that hold the current figures for it, each one stamped with the date the data was pulled. Read the mechanism here first: the numbers there are far easier to judge once you know what they are measuring.
See the live numbers: Commercial Real Estate.
Frequently asked
What exactly are the three nets?
What is a sale-leaseback?
Why does remaining lease term matter so much?
What happens if the tenant goes bankrupt?
Written for information only. Nothing here is investment, tax or legal advice, and no page on this site recommends buying or selling anything. Rules and tax treatment change; verify anything that matters with a professional who knows your situation. This explainer was drafted by a language model (claude-sonnet-5) from an editor-approved outline and fact sheet, under the rules set out in our editorial policy, and carries no market figures. Last updated Jul 29, 2026.