Why Triple Net Properties Are the Retirement Plan for Serious Investors with Alan Fruitman

Why Triple Net Properties Are the Retirement Plan for Serious Investors with Alan Fruitman

On Accredited Investors Only, host Peter Neill sits down with Alan Fruitman to unpack why triple net properties, or NNNs, are a favorite for investors seeking truly passive, long-term income. This article distills their conversation into practical guidance: what an NNN lease really means, who buys these assets, how they are valued, and how to get started safely.

What Is a Triple Net Lease?

A triple net lease means the tenant is responsible for almost everything related to the property. In Alan Fruitman’s working definition, a true triple net includes tenant responsibility for:

  • Property taxes
  • Insurance
  • All maintenance and repairs, including roof and structural elements
  • Parking lot maintenance, electrical, plumbing, HVAC, and foundation

That level of tenant responsibility is what makes NNN properties one of the few truly passive forms of direct real estate ownership. If it is a genuine triple net, the landlord can own the asset and have minimal day-to-day management responsibility.

Double Net, Ground Lease, and Fee Simple: The Differences

Not all leases advertised as triple net actually are. Common variations include:

  • Double net: The landlord retains responsibility for one or two major items, often the roof and structure, or sometimes HVAC and parking lot.
  • Ground lease: The landlord owns the dirt; the tenant built and owns the physical building. Ground leases are typically priced lower than fee simple, often around 60 cents on the dollar for similar sites, but they offer different tax characteristics because there is often little to no depreciation for the landowner at purchase.
  • Fee simple: The owner holds both the land and the building and can depreciate the improvements, which benefits cash-flow-focused investors.

Each structure has pros and cons. Ground leases can create instant equity when a tenant vacates because the building typically transfers to the landlord, while fee simple ownership provides depreciation advantages that improve cash flow.

Who Buys Triple Net Properties?

NNN buyers tend to be mature investors seeking simplicity and predictable income. Typical buyers include:

  • Doctors, lawyers, and accountants who do not want a day job managing property
  • Investors doing a 1031 exchange who want to lock in passive income
  • Retirees looking to simplify and preserve wealth with a steady cash flow

These buyers often have the capital to buy all-cash, which reduces leverage-related risk and contributes to a lower incidence of distress sales in the NNN market.

Why Corporations Lease Instead of Own

Many national tenants prefer leasing because their core business—selling food, retail goods, or services—often generates higher returns than tying up capital in real estate. Franchise models further push operating capital into expansion rather than property ownership. The result: strong national brands operating on leased premises, which creates opportunities for passive landlords.

Tenant Maintenance and Lease Enforcement

Even with strong national brands, landlords should be prepared to enforce lease obligations. Key points include:

  • National chains typically have regional and national real estate teams that ensure stores are maintained to protect the brand.
  • Leases spell out maintenance responsibilities. If tenants fail to keep the property in required condition, landlords can notify them and require repairs.
  • When a tenant signals it will not renew, hire an engineer to inspect and document deficiencies before lease expiration. Most leases require the property to be returned in good working order, not brand-new condition.

“The two happiest days of owning triple net property. The first happiest day is the day you buy it because you know you have a long stream of uninterrupted income. The second happiest day is the day your tenant vacates.”

That second point is counterintuitive but important. When a strong location goes on the market, a vacated site can command much higher market rent and attract competitive bidders from stronger national tenants.

Corporate vs. Franchise Tenants

Both corporate-run and franchise-run stores have pros and cons:

  • Corporate stores are often easier to underwrite if the parent company is public because financials and stock metrics are available.
  • Franchise stores can provide location-specific financials, such as gross sales for the individual store, which helps underwrite credit risk on a micro level.
  • Location matters more than whether a store is corporate or franchised. A strong franchise in an excellent location often outperforms a corporate store in a mediocre location.

Lease Structure, Escalations, and Renewals

Typical structures you will encounter:

  • Primary lease terms are often 15 or 20 years.
  • Many leases include multiple tenant-only renewal options, typically in five-year increments, sometimes totaling decades more in potential term.
  • Rent escalations are common but vary widely: annual flat increases, step-ups every few years, or CPI-linked adjustments are all possible. Most escalations will not fully keep pace with the market over long horizons.
  • Termination clauses matter. If a lease allows termination after 10 years, treat it effectively as a 10-year lease for valuation purposes, even if the primary term was longer.

Valuation: Cap Rates and What Drives Them

Cap rates reflect the relationship between net operating income and the property price, but several factors determine where a cap rate lands:

  1. Location: Prime retail corridors with strong anchors command lower cap rates.
  2. Tenant credit: Strong national tenants yield lower cap rates; local, lower-credit tenants require higher cap rates to attract buyers.
  3. Lease length: Longer, unbreakable leases typically lower risk and therefore lower cap rates.

Expect typical market cap rates to fall in a varied range depending on the asset quality. In recent markets, many NNN properties trade between roughly 4 and 7 percent, with the best and longest-leased assets at the lower end.

Interest Rates, Cash Buyers, and Market Behavior

Interest rates and cap rates move together. As interest rates rise, cap rates generally rise across property types. However, NNN deals have some distinctions:

  • A substantial portion of NNN transactions are all-cash purchases. The buyer profile tends to be mature investors with available capital who value stability over leverage-driven returns.
  • All-cash buying reduces the risk of distress due to loan maturities and negative leverage.
  • Because NNN buyers are often seeking preservation and passive income, the market tends to be less volatile than value-add real estate sectors.

Due Diligence: What to Check Before You Buy

Important due diligence steps include:

  • Review lease terms closely for maintenance obligations, termination rights, and renewal language.
  • Analyze tenant credit. For public corporates, examine financial statements; for private or franchise tenants, request store-level sales and guarantor financials when available.
  • Evaluate location with demographics, traffic counts (vehicles per day), and the retail corridor composition. Look for established neighbors like Walgreens, Home Depot, Target, and major banks.
  • Have an engineer inspect the property well before lease expiration if you anticipate vacancy or want to document deficiencies.
  • Consider tax implications. Ground leases and fee simple have different depreciation and tax profiles that influence investor suitability.

How to Get Started

Alan recommends a three-step approach for those new to NNN investing:

  1. Read a primer to learn the fundamentals. A short, focused guide can bring you up to speed in a few hours.
  2. Sign up for daily property lists from reputable brokers to see what the market looks like. Reviewing many offerings helps you internalize differences between assets.
  3. When you are ready to act, work with a broker who specializes in NNN property to align investment choices with your goals and risk tolerance.

If you want to explore further, useful resources include a nationwide NNN brokerage platform at 1031tax.com and related investor materials. For direct inquiries, Alan Fruitman can be reached at 1-800-454-0015. Many brokers also offer downloadable PDFs for each property so you can evaluate demographics, traffic counts, and lease details remotely.

Five Key Takeaways

  • Triple net is one of the few truly passive direct real estate investment strategies when the lease is an absolute NNN.
  • Not all leases labeled NNN include roof and structural responsibilities; read the lease carefully.
  • Cap rates are primarily driven by location, tenant credit, and lease term.
  • Ground leases provide instant equity upside but limit depreciation benefits; fee simple supports depreciation and may be preferable for cash-flow-focused buyers.
  • NNN investing is best suited for mature investors seeking simplicity, steady income, and low operational involvement.

Triple net properties offer a compelling blend of passive income, brand-backed tenants, and long-term value appreciation when you focus on the right locations and structure. For investors who want to simplify their portfolios and preserve capital while collecting rent, NNNs deserve serious consideration.