Net Lease Basics?
What Is a
Net Lease Investment?
You own a commercial property and collect rent from a business. A net lease assigns some property expenses to the tenant. With a triple-net lease, the tenant generally also pays property taxes, insurance, and maintenance costs. The lease spells out exactly who pays for what.
How it works
You own the property.
The tenant leases it.
The signed lease determines the actual obligations. triple-net does not mean every expense or risk disappears.
Explore the numbers
Cap Rate Calculator
Start with the annual property income left after operating expenses. That is called net operating income, or NOI. Divide it by the purchase price to calculate the cap rate. Try changing the numbers below.
Annual NOI ÷ purchase price = cap rate
NOI is income after operating expenses and before debt service and income taxes. Cap rate is not cash-on-cash return, total return, or a promise of income. This simplified example excludes financing, closing costs, capital expenditures, and tax effects.
Illustrative example, not an offering
$120,000 annual NOI ÷ $2,000,000 price
Scenario buttons reset to the $2 million / $120,000 example. A higher cap rate can reflect higher risk; the number alone does not determine investment quality.
Understand the structure
What are the three “nets”?
In addition to base rent, a triple-net lease generally allocates these expense categories to the tenant.
Property taxes
Taxes assessed on the real estate.
What should I check?
Who pays the bill, whether reimbursement is required, and how reassessments or increases are handled.
Property insurance
The insurance required under the lease.
What should I check?
Coverage requirements, who carries the policies, deductibles, and any owner obligations.
Maintenance
Operating and maintenance responsibilities defined in the lease.
What should I check?
Roof, structure, HVAC, parking, and replacement costs. A triple-net label alone does not answer who pays for each item.
A lease can allocate costs through direct payment or reimbursement. Multi-tenant properties may share expenses across tenants and still require active management.
Separate the label from the lease
What would you still
need to pay for?
Some triple-net leases leave repairs or replacement costs with the owner. You also need a plan for periods when the space is empty or the tenant stops paying rent.
See the questions to ask ↓triple-net and absolute net: are they the same?
Not necessarily. Absolute net arrangements may shift a broader set of responsibilities to the tenant. Labels vary; review the actual lease, including structural repairs and replacements.
Does a national brand guarantee the rent?
Not by itself. A franchisee or separate legal entity may be the tenant. Identify the entity obligated under the lease and any guarantor.
Does single-tenant mean triple-net?
No. Tenant count and lease structure are different concepts. A property can have one tenant or multiple tenants, and expense obligations still depend on the lease.
Is this completely passive income?
It can involve fewer day-to-day responsibilities than some other property investments. Owners still need to monitor payments, lease compliance, property condition, insurance, and what happens when the lease ends.
The investment case
5 reasons investors choose Net Lease Investments.
Rental income
Lease terms set the rent and payment schedule. Income depends on the tenant continuing to pay.
Less management
Many operating costs shift to the tenant. Review the lease for responsibilities that stay with the owner.
Rent increases
Some leases include scheduled increases. Check the timing, amount, and remaining term.
Potential tax benefits
Eligible buildings may offer depreciation deductions. Land is not depreciable; tax treatment varies.
1031 replacement options
Qualifying net lease investment real estate may be used in a 1031 exchange to defer gain, subject to the exchange rules.
Tax references: IRS depreciation guidance · IRS 1031 exchange guidance. Suitability depends on the property, financing, lease, and investor.
Property and tenant types
One tenant, several tenants, or a national brand.
These descriptions can overlap. A single-tenant property may have a national business or a local operator. The triple-net label describes expense responsibilities, not the tenant’s financial strength.
Single-tenant net lease
One tenant occupies the property. One lease and one rent payment can simplify administration. If that tenant leaves or stops paying, all rental income from the property may stop.
Multi-tenant net lease
Several tenants occupy separate spaces, often sharing property expenses. Income comes from more than one tenant, but the owner may have more leasing, common-area, and expense-reconciliation work.
National or corporate tenant
A recognizable business may offer established operations and financial information to review. Verify the company named on the lease and any guaranty. A national brand is not automatically a corporate-backed lease or investment-grade credit.
Franchise or local operator
A franchisee can operate under a national name while being a separate business. Review the actual operator, available financials, operating history, and any guarantor. The sign alone does not establish who backs the rent.
triple-net, absolute net, and ground leases
A triple-net lease can leave certain structural or replacement costs with the owner. An absolute net lease may shift more responsibilities to the tenant. In a ground lease, the tenant leases the land; ownership of improvements and what happens at expiration depend on the agreement. Review the documents rather than relying on the label.
Potential tax benefits
Depreciation and 1031 exchanges.
These are potential benefits of qualifying investment real estate. They are not special exemptions created by a triple-net lease.
Depreciation deductions
Eligible buildings and improvements may be depreciated over time, reducing taxable income subject to applicable rules and limits. Land is not depreciable. Your basis, ownership structure, and tax situation determine the deduction; a later sale can create tax consequences.
IRS: Depreciation1031 tax deferral
A qualifying exchange can defer gain when business or investment real estate is exchanged for eligible replacement real estate. A Net Lease Investment may serve as that replacement. Deferral does not mean the gain disappears, and cash or other nonqualifying value received may be taxable.
IRS: Like-kind exchangesPlanning a 1031 exchange?
Arrange the exchange with your qualified intermediary and tax advisor before closing the sale. Receiving or controlling the proceeds can disqualify a deferred exchange.
45 days to identify
Generally, identify eligible replacement property in writing within 45 days after transferring the property you sold.
Up to 180 days to acquire
Generally, receive the replacement property by the earlier of 180 days after the transfer or your tax-return due date, including extensions. The identification period is part of this window.
Caisson can assist with the property search and purchase. Your CPA, attorney, and qualified intermediary should confirm eligibility, structure, deadlines, and tax treatment for your transaction. IRS exchange rules · IRS guidance on sale proceeds
Bring better questions
Questions to ask
before buying.
You don’t need to know every term before speaking with an advisor. Start with these questions and build from there.
Talk to Us About Buying ↗- Who is the legal tenant, and who guarantees the lease?
- How long is the tenant committed to paying rent?
- When does rent change, and by how much?
- Which expenses and replacements stay with the owner?
- What happens if the tenant leaves or stops paying?
- How does financing change the cash flow?
- What condition is the building in today?
- What could it cost to re-lease or sell later?