A net lease is a lease structure where the tenant pays rent and also agrees to cover certain property expenses. The “flavor” of net lease depends on how many expenses the tenant covers, but the concept is the same: push day-to-day property costs away from the owner and toward the tenant.
A triple net lease (NNN) is the most common format people mean when they say “net lease.” In a triple net lease, the tenant typically pays property taxes, insurance, and maintenance (along with rent).
Why net lease is often viewed as “simple income real estate”
Net lease properties are popular because they can offer:
- Predictable cash flow: A long-term lease with defined rent terms can translate into steady income.
- Lower management intensity: Since the tenant often handles expenses and maintenance, the ownership experience can be more hands-off.
- Clearer underwriting: If you understand the tenant’s business and the lease terms, you can often model outcomes more directly.
This is not “risk-free” investing, but it can be a more straightforward way to invest in commercial real estate compared to properties that rely on nightly bookings, constant tenant turnover, or heavy operational decisions.
The three drivers of net lease returns
Most net lease deals are driven by three factors:
1) Tenant strength
You are underwriting the tenant’s ability to keep paying rent. Even the best building is a weak investment if the tenant cannot perform.
2) Lease terms
Rent escalations, remaining lease term, renewal options, guarantees, and landlord responsibilities matter. In many net lease structures, investors pay a premium for longer lease terms because they reduce vacancy risk.
3) Price, commonly discussed as “cap rate”
A cap rate is a simple way to describe the relationship between a property’s income and its price. It is commonly expressed as: net operating income divided by the property value.
Generally, all else equal:
- Lower cap rate often implies higher-quality, more stable income (and a higher price)
- Higher cap rate often implies higher perceived risk (and a lower price)
What can go wrong, and how smart underwriting reduces surprises
Even “simple” net lease properties have real risks. Here are the big ones:
- Tenant credit events: A tenant can downsize, restructure, or go dark. The first line of defense is tenant and site-level diligence.
- Lease rollover risk: If a lease is nearing expiration, the owner may face downtime, re-tenanting costs, and uncertain rent. Shorter remaining lease term often demands a higher yield.
- Location and real estate obsolescence: The best lease in the world cannot fix a poor site if demand shifts.
- Interest rate and pricing risk: Cap rates and values can move as market conditions change, even if the tenant keeps paying.
Why we like net lease in 2026
Today’s environment rewards discipline. The net lease market has been showing pricing stability, and that can create a healthier backdrop for buyers who want to be selective. For example, The Boulder Group’s Q4 2025 data showed overall net lease cap rates were essentially flat, with only a 1 bp move quarter-over-quarter.
The Dey Street approach
We focus on underwriting that prioritizes:
- The tenant’s real business performance
- Lease terms that support durable income
- Real estate that remains useful for the next tenant, not just the current one
Bottom line: Net lease can be a compelling way to seek durable income, but the “sleep-well” outcome comes from underwriting, not from the acronym.
Disclosure: This article is for informational purposes only and is not investment advice. All investing involves risk, including the possible loss of principal.