There are several approaches to making money in real estate, but today I am going to focus on how to make money with real estate, using a triple net lease.


What is a Triple Net Lease?

What is a Triple Net Lease Commercial and Industrial Rentals how to make money with real estate

A triple net lease (commonly referred to as NNN or “triple net”) is a rental agreement (typically commercial) in which the tenant is responsible for property taxes, insurance premiums, and structural maintenance and repairs to the property (in addition to rent).

Triple net leases are usually long term leases, going out into the future for 10 or more years, and usually have extension options. These long term leases also include provisions for increasing rent during the term, as well at the time of extensions to the original lease.

Triple Net Leases Easy Real Estate Ownership how to make money with real estate

A triple net lease removes most of the risk of being a landlord in that the tenant is now responsible for everything – the landlord just receives the rent check, a great form of levered income.

How can a triple net lease help me make money with real estate?

Making Money with Real Estate Growing Wealth Over Time how to make money with real estate

Making money in real estate is about consistency.

By using a triple net lease with your commercial tenants, you are able to “smooth out” your income streams over the long term. The property now has a very long-term tenant (5, 10 or 20 years) that is responsible for all of the expenses associated with that property.

The property now has a consistent stream of income that you can count on far into the future. Additionally, you don’t have to worry about any expenses that may arise from repairs, increases in insurance, property taxes or other unknowns.

Making Money from Rent

As the landlord, your exposure to property expenses are removed from the equation and the rent check is pure profit (unless you have a mortgage on the property). For example, if you have a $1,000,000 property rented at a 7% CAP rate with a triple net lease, your income stream from the first year is $70,000.

Assuming a 10 year lease and 3% annual increases, your income stream looks like this:

Triple Net Lease Analysis - 10 Year Rental Income

YearRent IncreaseNet income
Total Net Income$802,471.55
Assumptions: Property Purchase Price of $1,000,000 - CAP Rate of 7% - Annual Rental increase Percentages of 3% - 10 Year Analysis

At the end of 10 years, the property has thrown off $802,471.55 in rental income. This income can be sheltered via depreciation expenses (speak with your tax advisor) as well.

Making money from appreciation

Triple Net Lease Analysis - 10 Year Property Appreciation

YearProperty AppreciationProperty Value
Total Property Appreciation$248,862.97
Assumptions: Property Purchase Price of $1,000,000 - Annual Property Appreciation Percentage of 2.5% - 10 Year Analysis

Assuming an increase in the property values of 2.5% per year, the property value at the end of the rental period is $1,248,863, an increase of almost a quarter of a million dollars.

Valuing a Commercial Real Estate property

Triple net commercial real estate is typically valued by its CAP rate (capitalization rate). The CAP rate can vary based on the quality of the property, quality of tenant and the duration of the triple net lease.

A high quality property will command a higher property purchase price and consequently have a lower CAP rate. A high quality investment grade commercial tenant will pay a lower amount in rent due to the unlikely event of bankruptcy and defaulting on the lease. A property with a shorter term triple net lease will sell for a lower price (and higher CAP rate) due to the fact that you will need to acquire a new tenant shortly (and pay the costs associated with the tenant change).

How to Make Money with Real Estate Using a Triple Net Lease - Getting Started

Ok, triple net leases sound like a “no-brainer” on how to make money with real estate. If you want to use commercial real estate to add new income streams, then a triple net lease sounds like the way to go. How can you get started?

Buy a commercial property and lease the property out.

This is a great approach if you know your market, have relationships with commercial real estate brokers and have ready access to capital. You need to find a desirable commercial property, purchase the property, find a tenant and perform the tenant improvements needed (if any). You will need to have considerable cash available for the property purchase and rehab (if needed).

Buy a property with a tenant already installed.

Making Money with triple Net Leases Tenanted Properties how to make money with real estate

There is a huge market for triple net real estate investments with tenant already installed. Properties with tenants such as KFC, Starbucks and Walgreens as tenants are available at CAP rates of 4.35% to 6.25% (at the time of this article) from brokers that specialize in these types of properties.

The purchase of the property includes the tenant and the lease. Once you purchase the property, you can sit back and collect your rent for the next 20 years or so. Like with any “direct purchase” approach, you will need to have considerable capital to purchase these “tenanted” triple net lease properties.

Buy a REIT (real estate investment trust) focused on triple net real estate.

How to make money in real estate with REITs how to make money with real estate

Purchasing shares in a REIT that is focused on triple net real estate is another way to participate in triple net commercial real estate. REITs (like Realty Income) trade like stocks and own thousands of triple net lease properties in their portfolio.

Invest at the property level with crowdfunded commercial real estate.

There are several online platforms that allow investors to group together to make “property level” commercial real estate purchases. These properties give the investor more control in selection, versus buying a basket of properties inside of a REIT portfolio.

How to Make Money with Real Estate - What to Look out For when using a triple net lease

How to Make Money with Real Estate Using a Triple Net Lease What to Look Out For how to make money with real estate

Make sure the property has value, not just the lease.

Remember the first three rules of real estate:

Location – Location – Location

When purchasing a triple net lease property, it is easy to get caught up in the CAP rate, length of lease and tenant. One thing to never forget is the value of the underlying property.

A great property can always secure another great tenant, whereas a poor property with a great tenant will be difficult to re-lease.

Have solid lease guarantees.

Triple net leases are typically guaranteed by the company and in some cases personally guaranteed by the owner of the company (in the cases of smaller companies). Leases executed by large publicly traded companies (think Starbucks) are evaluated on the credit rating of the company.

As the landlord, you only make money when you get your rent payment. When asking yourself “how to make money with real estate”, one of the first rules is to make sure you protect those income streams (rent payments) as much as possible.

Diversify across properties.

In addition to diversifying across tenants, a commercial property owner needs to diversify across different properties in different geographic locations. Owning one $26,000,000 property is much riskier than owning twenty-six $1,000,000 properties.

One hurricane or fire will not wipe you out if you are diversified across multiple properties in multiple locations.

Final thoughts on how to make money with real estate using a triple net lease.

Commercial rentals (I equate commercial rentals with triple net leases) have the highest Lever Rank (35) of the direct real estate ownership levers (Residential Rentals have a Lever Rank of 25 and Vacation Rentals have a Lever Rank of 10) .

The higher Lever Rank for Triple Net Lease Commercial Rentals is due to the simplicity of the triple net rental model and the removal of all landlord responsibilities.

Lever Rank 35 Triple Net Leases how to make money with real estate
Triple Net Lease Ultimate Mailbox Money Levered Income how to make money with real estate

Since triple net leases sound like pure “mailbox money”, why don’t they have a higher Lever Rank like REITs or Affiliate Marketing?

The “triple-net” lease model is a great way to make money with real estate, but it does have some complexity and risk. To diversify properly into different triple net commercial properties with different tenants, you need at least $15,000,000 to minimize risk (fifteen, $1,000,000 properties). I would actually feel more comfortable with 20 properties, so that one property would not represent more than 5% of my income from the business model.

The high cost of entry (millions of dollars of capital), complexity, risk, liquidity and lack of diversity effectively reduces the Lever Rank to 35.

I currently have directly-owned triple net lease properties, directly-owned residential and commercial real estate, vacation rental real estate,  crowdfunded triple net mortgage notes and triple net focused REITs, but my current focus is primarily on REITs (real estate investment trusts), my favorite real estate income lever.