A NNN (triple-net) lease is a commercial real estate lease in which the tenant pays base rent plus all three 'nets': property taxes, building insurance, and maintenance costs. This makes the income to the property owner extremely predictable and operationally passive — the landlord simply collects the net rent check. NNN leases are most common in single-tenant retail (pharmacy, fast food, auto parts) and industrial real estate.

What are typical cap rates for NNN leases?

NNN cap rates vary by tenant credit quality and lease term. Investment-grade tenants (CVS, Dollar General, McDonald's, Amazon) with 15+ year leases trade at 4.50–5.50% cap rates. Non-investment-grade tenants with shorter leases trade at 5.50–7.50%+. Absolute NNN automotive (AutoZone, O'Reilly) trades at 4.75–5.75%. Quick-service restaurants trade at 4.50–5.50% for strong brands. The tighter the cap rate, the lower the going-in yield — investors accept lower initial returns in exchange for credit quality and lease security.

What is a sale-leaseback in commercial real estate?

A sale-leaseback is a transaction in which an operating company sells its owned commercial real estate to an investor and simultaneously signs a long-term NNN lease to continue occupying the property as a tenant. The seller receives cash proceeds from the sale to redeploy into their core business, while the investor receives a stabilized NNN income stream. Sale-leasebacks are extremely common in restaurant, pharmacy, retail, industrial, and automotive sectors.

What due diligence should I do on a NNN lease investment?

Key NNN lease due diligence includes: tenant financial health (for non-public tenants, review 3 years of financial statements), remaining lease term and options, rent bump structure (fixed % vs. CPI), co-tenancy and kick-out clauses, landlord repair obligations, environmental conditions, location quality and alternative use value, and rent-to-sales ratio (should be <10% for retailers). For sale-leasebacks, also evaluate the tenant's core business health since they will remain as your tenant.

How do rent bumps work in NNN leases?

NNN lease rent bumps (also called rent escalations) are contractual increases in the base rent over the lease term. Common structures include: fixed percentage bumps of 2–10% every 5 years, annual fixed percentage bumps of 1–3% per year, CPI (Consumer Price Index) adjustments annually or every 5 years, and flat leases with no bumps (increasingly rare). Annual fixed-percentage bumps are most favorable for investors and are now common for industrial NNN and many retail NNN leases. Flat leases still exist in older McDonald's and pharmacy portfolios.

NNN Lease Calculator | Triple-Net Investment Returns Analysis

Q: How do rent bumps work in NNN leases?

NNN lease rent bumps (also called rent escalations) are contractual increases in the base rent over the lease term. Common structures include: fixed percentage bumps of 2–10% every 5 years, annual fixed percentage bumps of 1–3% per year, CPI (Consumer Price Index) adjustments annually or every 5 years, and flat leases with no bumps (increasingly rare). Annual fixed-percentage bumps are most favorable for investors and are now common for industrial NNN and many retail NNN leases. Flat leases still exist in older McDonald's and pharmacy portfolios.

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NNN Asset Type

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Property Details

Acquisition pricing and initial costs

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NNN Lease Terms

Tenant pays taxes, insurance & maintenance

Annual NNN RentYear 1 base rent

Rent EscalationAnnual fixed bump

Landlord OpEx$0 for absolute NNN

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NNN Cap Rate by Tenant

Tenant / Type	Cap Rate
CVS / Walgreens	5.00–5.75%
McDonald's / QSR	4.50–5.25%
Dollar General	5.50–6.25%
AutoZone / O'Reilly	4.75–5.75%
NNN Industrial	4.50–5.50%
Non-IG Retail	6.00–8.00%

Source: Market estimates, Q2 2026. Full market data →

NNN Lease Checklist

✅ Remaining lease term vs. loan term

✅ Tenant credit rating (IG vs. non-IG)

✅ Rent bump structure (flat / fixed / CPI)

✅ Landlord repair obligations

✅ Co-tenancy / kick-out provisions

✅ Renewal option rents (market vs. fixed)

✅ Rent-to-sales ratio (<10% for retailers)

✅ Location alternative use value

NNN Lease Investment Analysis

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📊 Annual Pre-Tax Cash Flow

Year-by-Year Cash Flow Model

Year	Gross Rent	OpEx + CapEx	NOI	Debt Service	Pre-Tax CF	CoC	DSCR	Loan Balance

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Exit Analysis

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IRR Cash Flow Schedule

Sensitivity Analysis — Levered IRR

IRR across hold periods and exit cap rates, all other inputs held constant.

What is a NNN (Triple-Net) Lease?

A triple-net lease is the most landlord-friendly commercial lease structure in existence. Under absolute NNN terms, the tenant is responsible for 100% of all property costs: base rent, property taxes, building insurance, and all maintenance and repair costs including the roof and structure. The property owner receives a clean net rent check with virtually no operating obligations or expense exposure.

This structure is most common in single-tenant retail (pharmacies, fast food, auto parts, dollar stores), industrial warehouses, and sale-leaseback transactions. The passive income nature of NNN investments makes them attractive for 1031 exchange buyers, family offices, and individual investors seeking equity-like returns with minimal management burden.

The Three "Nets" Explained

Property Taxes: Annual real estate taxes paid by tenant to local government
Building Insurance: Property and casualty insurance on the structure
Maintenance: All upkeep, repairs, and capital improvements to the property

NNN Lease Cap Rates and Tenant Credit Quality

The most important variable in NNN lease valuation is tenant credit quality. Investment-grade tenants (S&P BBB- or better) command significantly tighter cap rates than non-rated or sub-investment-grade tenants. A CVS or McDonald's trading at 4.75% cap provides far more security than a regional restaurant chain at 7.50% — but the investor in CVS accepts a significantly lower initial yield.

Cap rate also varies with remaining lease term (WALT). A 20-year absolute NNN CVS lease commands a tighter cap than the same asset with only 5 years remaining. As leases approach expiration, buyers demand higher cap rates to compensate for re-leasing risk. Understanding the cap rate/credit/term relationship is fundamental to NNN lease investment.

Factors That Move NNN Cap Rates

Tenant investment-grade credit rating (BBB- or better = premium pricing)
Remaining lease term (longer WALT = tighter cap)
Rent bump structure (annual % bumps = premium over flat leases)
Market interest rates (cap rates typically move with Treasury yields)

Sale-Leaseback Transactions: A Primer

In a sale-leaseback, a company sells owned commercial real estate to a real estate investor and simultaneously signs a long-term NNN lease to remain as the tenant. The company unlocks capital from its real estate while retaining full operational use of the property. The investor receives a stabilized NNN income stream from day one with a creditworthy tenant who is already in place and motivated to remain.

Sale-leasebacks are most common in industries where real estate is a core operational asset but not a core business competency: restaurant chains, pharmacy networks, industrial distributors, auto parts retailers, manufacturing companies, and healthcare operators. From 2015–2025, sale-leaseback transaction volume exceeded $100B annually in the US alone, driven by low interest rates and private equity interest in unlocking balance sheet real estate.

NNN Lease Rent Bumps: Fixed vs. CPI

The rent escalation structure in a NNN lease determines how investment returns grow over time and significantly affects both cash-on-cash performance and exit cap rate. There are three common rent bump structures:

Three Types of NNN Rent Bumps

Annual fixed %: Rent increases by a set percentage (e.g., 2% or 3%) each year. Most favorable for investors because growth is predictable and compounds effectively. Now common in NNN industrial and many retail leases.
Every-5-year fixed: Rent stays flat for 5 years then jumps by 5–10%. Common in older retail NNN. Less favorable due to flat periods.
CPI adjustments: Rent tracks Consumer Price Index. Provides inflation protection but less predictability. Common in long-term ground leases.
Flat leases: No rent increases throughout the lease term. Most common in legacy drug store and fast food deals. Lowest quality from an investment standpoint.

Frequently Asked Questions — NNN Lease Calculator

What is a good IRR for a NNN lease investment?

Levered IRR targets for NNN investments depend on tenant quality and lease term. Core NNN with investment-grade tenants and long leases typically generates levered IRRs of 7–10%. Mid-tier NNN with non-IG tenants or shorter leases targets 10–14% IRR. The relatively modest IRR reflects the passive, low-risk nature of NNN income — NNN investors are accepting lower returns in exchange for extreme income stability and minimal management requirements.

How is NNN lease investment income taxed?

NNN lease rental income is taxed as ordinary income at the investor's marginal rate. However, investors can offset rental income with depreciation (commercial real estate depreciates over 39 years). Under cost segregation studies, significant amounts can be accelerated to 5, 7, or 15-year schedules. Additionally, 1031 exchanges allow NNN investors to defer capital gains taxes when selling one property and purchasing another of equal or greater value within specific timeframes.

What is the difference between NNN, NN, and gross leases?

A triple-net (NNN) lease requires the tenant to pay all three major expenses: property taxes, insurance, and maintenance. A double-net (NN) lease passes taxes and insurance to the tenant but keeps structural maintenance with the landlord. A modified gross lease has the landlord pay all operating expenses from a base-year amount, with the tenant paying increases above the base. A full gross lease has the landlord responsible for all operating expenses. NNN provides maximum landlord passivity and lowest operating expense risk.

Can I use a 1031 exchange to buy a NNN property?

Yes — 1031 exchanges are extremely common in the NNN investment market. Many investors sell appreciated multifamily, office, or retail assets and exchange into passive NNN retail or industrial assets for their retirement years. Key requirements: identify a replacement property within 45 days of sale, close within 180 days, use a qualified intermediary, and purchase equal or greater value. DST (Delaware Statutory Trust) structures allow fractional NNN ownership and are common for smaller 1031 exchange amounts.

What happens when a NNN lease expires?

When a NNN lease approaches expiration, it becomes the defining risk of the investment. If the tenant exercises their renewal option at a fixed rate, income continues predictably. If the tenant exercises at market rate (favorable if rents have grown), the income resets to current market. If the tenant vacates, the property must be re-leased or sold — often at a lower price if the tenant was a credit anchor. Investors should always evaluate: What is this property worth vacant? What are comparable market rents? How many other tenants would want this location?

NNN Triple-Net Lease Calculator