Triple Net Leases (NNN) have a reputation for being one of the safest plays in commercial real estate. By pushing property expenses onto the tenant, investors enjoy lower overhead and cleaner income statements. But that sense of security can sometimes be misleading—especially without the right precautions.
In this article, we’ll explore where common risks in NNN investing tend to surface, how to identify red flags in lease agreements, and strategies to stay protected while keeping things passive.
The Allure and the Hidden Vulnerabilities
NNN properties may seem low-maintenance, but important details can slip through the cracks—like vague maintenance clauses, missed insurance updates, or unexpected capital costs hidden in the lease.
1. Inflation Has a Way of Catching Up
Most NNN leases include fixed rent increases, but those bumps don’t always match the real pace of inflation. The tenant might be covering taxes and maintenance, but the landlord’s take-home income may not stretch as far over time. It doesn’t happen overnight, but over a long lease, it adds up.
2. Everything Rests on One Tenant
With a single-tenant property, you’re tied to that one business. If they leave, go bankrupt, or stop paying, your income stops too. And if the building was built with that tenant in mind, finding a replacement can take longer than expected.
3. Some Repairs Still Land in Your Lap
It’s true that tenants usually handle upkeep, but when something big breaks—like a roof or an HVAC system—it often falls to the landlord. These costs don’t show up often, but when they do, they can be large. If you’re not setting aside money for that, it can be a tough hit.
4. You Can’t Always Adjust Mid-Lease
The lease locks in certain terms, which means the landlord can’t easily adapt if the market shifts. Maybe the neighborhood changes, or the property no longer meets what tenants want, but your hands are tied until that agreement runs out.
Looking Beyond the Basics: How Passive Investors Can Stay Protected
Passive investing still requires active oversight. Preserving returns and protecting capital means looking beyond the lease and staying alert to long-term risk—even when managing from afar.
Tenant Research Shouldn’t Stop at Closing
A credit check is just the starting point. You’ll want to understand the tenant’s broader picture: How stable is their industry? Are they adapting to market changes? It also helps to keep tabs on their finances over time. If their model starts to slip, you’ll want to know early.
Read the Lease Like It’s a Business Plan
Minor clauses in a lease can have major implications. It’s worth reviewing the terms carefully before making a commitment:
- Rent Escalations: Are increases tied to inflation, fixed, or a mix of both? Some structures may fall behind real-world costs.
- Lease Length and Renewal Terms: Long leases offer income stability but may also limit future flexibility. Tenant-friendly renewals can lock in below-market rents.
- Landlord Responsibilities: Make sure you know exactly which repairs or upgrades you’re expected to cover. Are there limits? Is there a clear dispute resolution process?
- Use and Assignment Clauses: If a tenant exits, could the restrictions make it harder to re-lease? Some clauses can slow down turnover or limit who qualifies, so make sure to review carefully.
Reserve Funds Aren’t Optional
Set aside money for big-ticket repairs the same way you’d budget for property taxes. Treat reserves as part of your operating costs, not just an emergency fund. When something major breaks, this buffer keeps you from dipping into debt or being forced to sell.
Don’t Put Everything in One Basket
Relying too much on one property, one tenant, or even one industry leaves you open to bigger losses. Spread your investments across locations and sectors—think retail, healthcare, and industrial. Some investors mix direct ownership with diversified REITs or managed funds to balance risk.
Use the Right Partners
Overseeing these properties from a distance or navigating tricky lease terms can quickly become overwhelming. That’s why having knowledgeable professionals in your corner makes a real difference.
A real estate attorney familiar with NNN leases can help spot potential issues before they become problems. Hire property managers who’ve handled similar assets. And most importantly, get expert depositary services to securely manage rent collection, reserve funds, and disbursements. A qualified third-party administrator can take on these tasks while giving you clear reporting and peace of mind.
Final Thoughts
Triple Net Leases offer consistent income with minimal day-to-day involvement. But relying on the lease alone can leave gaps in protection.
- Passive investing only works long-term when the proper protections are built into the deal:
Ongoing tenant and lease monitoring to stay ahead of potential issues - Well-funded reserves to cover major capital costs without disruption
- Diversified holdings to reduce risk exposure across markets and sectors
- Trusted professional support, including legal counsel, property managers, and expert depositary services
A strong lease is only one part of the equation. True stability comes from building around it—layering in protection, planning ahead, and knowing when to bring in the right expertise.
Looking to strengthen your NNN strategy? Connect with Triple Net Investment Group for expert guidance and trusted support.