The big idea
When investors compare net lease to multifamily, they often focus on property type or cap rate. A better starting point is operational intensity, meaning how much day-to-day work, variability, and decision-making is required to keep cash flow steady.
In simple terms: multifamily is an operating business wrapped in real estate, while net lease is often a contract-driven income stream (depending on lease structure and tenant quality).
What “operational intensity” really means
Operational intensity is the difference between:
- Collecting income from a small number of long-term contracts, with fewer moving parts
- Managing many customers (tenants), many work orders, constant leasing, and frequent unit turns
More operational intensity does not mean “bad.” It means more ways to add value, and also more ways performance can drift if execution slips.
Net lease: simpler operations, higher tenant concentration
Many net lease properties are structured as triple net (NNN), where the tenant is typically responsible for property taxes, insurance, and maintenance, in addition to rent.
That structure often translates into:
- Lower operating burden for the owner, because many expenses are handled, or reimbursed, by the tenant
- More predictable expense behavior, since the tenant bears a larger share of cost fluctuations
- Longer lease terms are common, which can improve cash flow visibility
The main tradeoff is concentration:
- If you own a single-tenant property, your income is tied heavily to one tenant, one location, and one lease.
Multifamily: more moving parts, more built-in diversification
Multifamily income is typically created by many leases across dozens or hundreds of residents. That diversifies tenant risk, but it comes with operational complexity.
Common multifamily operating realities include:
- Turnover and make-ready costs: Turnover is a meaningful driver of operating costs because units often require work between tenancies
- Marketing and leasing activity: Maintaining occupancy is an ongoing job, not a once-a-decade event
- Operating expenses are owner-driven: Payroll, repairs, utilities (where applicable), concessions, and vendor management can meaningfully affect performance
This is why multifamily can offer more “hands-on” ways to improve returns, for example through renovations, better property management, or operational efficiencies. It also means results depend more on execution.
Side-by-side: how operational intensity affects risk
| Dimension | Net Lease (often NNN) | Multifamily |
|---|---|---|
| Expense responsibility | Often shifted to tenant (taxes, insurance, maintenance) | Mostly borne by owner, managed through operations |
| Income drivers | Tenant performance, lease terms, location | Occupancy, turnover, rents, expenses, management execution |
| Tenant risk | Concentrated in one tenant per property | Spread across many residents |
| Value creation | Often more “underwrite and hold,” with selective improvement | More “operate and improve,” with many levers |
| Typical volatility sources | Lease rollover, tenant credit event, re-tenanting risk | Turnover, expense growth, leasing velocity, local supply and demand |
Two quick definitions that help:
- NOI (Net Operating Income) is property revenue minus operating expenses, and it is a common building block for valuation.
- Cap rate is often discussed as NOI relative to price, but NOI quality depends heavily on how operationally intensive the asset is.
What investors should watch in each strategy
If you are looking at net lease
Focus on:
- Tenant business strength and unit-level viability
- Lease term remaining, rent escalations, and guarantees
- Real estate adaptability, if the tenant ever leaves
Even if a property is NNN, investors still face the “one tenant” reality, so underwriting the tenant and the location is critical.
If you are looking at multifamily
Focus on:
- Historical and projected turnover, plus make-ready costs
- Expense controls and property management quality
- Local supply pipeline and employment drivers
The Dey Street perspective
We like net lease for many retail investors because it can be easier to understand and track: a lease, a tenant, and a defined income stream, often with key expenses shifted to the tenant in an NNN structure.
Multifamily can be a strong strategy too, especially for teams built to operate at scale, but operational intensity is the point: it can create upside, and it can create variability.
Bottom line: net lease tends to be more contract-driven, multifamily tends to be more operations-driven. Knowing which type of risk you prefer is a big part of building a real estate portfolio you can stick with through cycles.
Disclosure: This article is for informational purposes only and is not investment advice. All investing involves risk, including the possible loss of principal.