Are Triple Net Investments Better Than the Stock Market?

Oct 7, 2023

If you’ve maxed out your Roth IRA and have put enough into your stock market mutual fund for the year, but you still want to invest safely with healthy returns. Look no further than triple net (NNN) lease investments.

Triple net (NNN) lease investments are generally low-risk investments. They provide guaranteed monthly income and in some cases come with fixed increases, allowing you to own a tangible asset that you can sell at any time.

In this article, we’ll explore NNN vs. stock market:

  • Returns
  • Volatility
  • Tax opportunities
  • Benefits

NNN Lease Investments Vs. Stock Market Returns

triple net lease stability

Properly-chosen NNN investments are generally safe assets that preserve cash flow, build wealth, provide reliable monthly income, and yield increasing returns for up to twenty years. Unlike the stock market, you won’t have to wait long-term to capitalize on the gains.

Owning one NNN property or a mix of properties with different tenant types, lease terms, asset classes, and locations can balance risk and reward, provide tens of thousands of dollars of responsibility-free monthly income, and offer you the lowest possible risk factor with the highest potential internal rate of return (from 7% to 9% on each).

If you’re used to the stock market’s average ten-year return of 10–12%, you may be surprised that, when adjusted for inflation and in a healthy economy, stock market investments provide 7% – 9% returns, which is in-line with stable, income-producing NNN investments.

Stock Market Volatility vs. Triple Net Lease Stability

triple net lease stability

The stock market is volatile, at the mercy of economic perceptions and predictions, world affairs, interest rate changes, public policy, and politics. These factors can result in rapid swings (both up and down) in share value, making the stock market difficult to rely upon for asset and income preservation.

With stocks and bonds, the value of your investment is a piece of paper that promises repayment or income. You can lose as much as you gain quickly, and you could risk losing a lifetime of accumulated investment wealth when you need it most. Stocks do offer liquidity, but make sure you’re aware of any costs or penalties to that liquidity.

A triple net lease is a long-term, legal contract with pre-set rental increases from a creditworthy tenant.. Additionally, multiple guarantees bolster triple net lease assets, including a contract or lease that promises a guaranteed rental income stream with pre-set increases that hedge against inflation and the tangible underlying real estate value, which adds security and stability to the investment.

Stock markets can crash. The right NNN investment can offer stability.

Triple net investments are a smart way to diversify any portfolio and temper the unpredictable nature of the stock market.

NNN vs. Stock Market Tax Opportunities

Capital gains written on sticky note on top of tax forms

Your annual tax rate on stock market profits, depending on income and length of time you’ve held the asset, could be as high as 37% depending on your tax bracket. Short-term capital gains from stocks held less than a year are taxed as ordinary income. Long-term gains are taxed slightly less. Unlike commercial real estate triple net lease investments, stocks offer very few, if any, tax opportunities.

The income from triple net assets, depending on the state in which the property sits, may not be subject to income tax. Triple nets offer depreciation opportunities, and the IRS’s 1031 exchange can provide you with a tax deferral opportunity on federal capital gains.

NNN Property Ownership in States with No Income Tax

NNN property ownership in the states with no personal income tax and no state capital gains tax can preserve significant capital. The states without personal income tax and with no state capital gains tax include: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire started to phase out their taxes on investment income and interest starting in 2023. The states that don’t tax capital gains (but do have a state income tax) are Colorado and New Mexico. Montana offers a credit to offset a portion of the capital gains tax.

When you factor in the annual savings of not paying income tax, or paying a very low tax, you could save tens of thousands of dollars when you purchase a NNN lease property, depending on your income bracket and where you purchase.

NNN Property Depreciation

Cost segregation depreciation (CSD) can drastically accelerate the depreciation of certain building expenses. Based on your property and individual tax variables, the money you spend on non-structural CapEx improvements may be depreciated over five, seven, or 15 years, versus 27.5 or 39 years.
This much shorter depreciable tax life of a NNN lease property – possibly a 100% write-off the year of purchase – helps you realize immediate cash flow and achieve significant tax benefits on new and existing buildings. When you sell your property you also stand to gain monetarily through asset reclassification and write-offs.

NNN Property 1031 Exchange Tax Deferral

One of the biggest NNN tax opportunities is the 1031 exchange. This tax code allows you to trade or “exchange” any type of investment property for another and defer the federal capital gains tax, possibly indefinitely. For example, you could exchange a residential rental for a retail store, an apartment complex for land or a medical clinic, or an office block for a fast-food restaurant.

Trading a high-maintenance property for an absolute NNN property cuts the expenses and headaches of dealing with property issues, of paying property taxes, insurance, maintenance, management salaries. In that way absolute NNN lease property puts additional money back into your bank account beyond the capital gains deferral.

NNN Investment & Stock Market Benefits

check box on paper "are you at risk of losing money?" yes or no

Stock Market Benefits

The stock market has its benefits, mainly that it typically rises in value over time, despite the dips and recessions. If you have decades to invest, the stock market can provide a large payout later in life. It is also liquid, with plenty of buyers waiting in the wings if you should decide to sell your stocks, though you may not always be able to sell at a profit.

Triple Net Lease (NNN) Benefits

Triple net lease investments, which are typically essential retailers, medical clinics, and child care assets, are stable and have been for decades. Because leases are 10 to 20 years with incremental increases, they allow you to hedge against inflation and cover rising costs.

Though real estate has a reputation for a lengthier sale time (or illiquidity), many NNNs sell before they ever make it on the market because they are such valuable, high-credit tenants that guarantee income.

Additionally, NNN properties are essential in nature, and, as the pandemic proved, they are adaptable and can thrive in any economic condition. With a NNN property you can realistically expect a 5–7% ROI, a healthy monthly income, and tax benefits that preserve capital.

NNN investments balance the high-risk nature of the stock market and create a dependable wealth strategy.

How to Find the Best NNN Investment

Business woman looking over paperwork on an iPod with a real estate broker

As you consider triple net investing, make sure to engage a reputable buyer’s advisor to assist with your investment journey. You need an expert advisor to navigate the many variables in the NNN lease buying process and complete your purchase with total accuracy so that you maximize your profitability.

To secure the best NNN investment for your goals, an experienced, specialized Westwood Net Lease Advisor can help you define exactly what fits your financial and lifestyle objectives, locate available properties anywhere in the country that fit those objectives, and help you through the process to closing and beyond.

To Wrap it Up — Triple Net Investing Beats the Stock Market for Stability

triple net lease stability

Triple net lease commercial real estate (CRE) is a long-term, revenue-generating investment that provides investors with a reliable, passive, guaranteed source of income. They outweigh the volatility and ambiguity of the stock market and provide you with a consistent cash flow.

Westwood Net Lease Advisors specializes in NNN investments and 1031 exchanges. We work hard for our buyers and provide the confidence to navigate the often-complex process with ease while offering objective advice, education, knowledge, and advocacy, at no charge. Contact us today for your free, no-obligation conversation at 314-997-5227.

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