When I was first getting started investing in real estate, I was looking for an investment that would produce consistent cash flow. I evaluated many types of real estate (single-family, multifamily, commercial office/medical/retail/etc.) and asset classes to see what fit my goals the best. Plus, it was imperative for me to gain real-life investor and ownership experience before bringing investors to invest their money in any opportunity. 

I looked at single-family rentals, but they didn’t have any scale, and if a tenant moved out, then your income went to zero, so that didn’t make much sense to me. I shifted my focus to commercial real estate and larger multifamily properties because of scalability and a more stable business model. 

I was able to find a commercial office building that had six units that had triple-net leases in place. Five of the six units were leased with longer-term leases in place, and one was vacant, so I had to get a lease in place. 

What is a Triple Net Lease?

Triple net leases are commonly an agreement where the lessee pays rent, utilities, and three other property expenses: insurance, maintenance (sometimes called a CAM fee or common area maintenance fee), and taxes. The leases are typically five to ten years, with one or two extensions that can run another five or ten years per each extension. 

What are the benefits?

A significant benefit to triple net leases is that you can have a tenant renting the same unit for many years and have a corporate guarantee for the tenant to pay rent for many years to come. Another great benefit is that tenants usually only use the unit during regular business hours, so the wear and tear on the building is minimal. If there is any unit maintenance, the tenant will pay those costs. 

With my building, the tenants all had solid credit ratings and strong local market reputations. One tenant was a school; they rented three of the six units. The second tenant was a local developer, the third tenant was a medical sales office, and the last tenant was the U.S. sales office for one of the largest plastic cap manufacturers in the world. A great business with a corporate guarantee and a good credit rating can make for a solid investment. 

Types of Tenants

Based on research done in 2022, here are the five best triple net lease tenants: 

1. Dollar General

2. Medical office buildings and retail pharmacies

3. Gas & convenience stores

4. Fast-food/QSRs with drive-thrus

5. Early Education Centers & Child Care Assets

We look forward to monitoring and watching this investment class, as it might have excellent investment opportunities.