The Best States for NNN Investing

Jan 19, 2023

When investing in the triple net (NNN) lease market, it pays to look at purchasing investment properties across the country. Since absolute NNN lease properties don’t require any landlord responsibility, purchasing a property with a major-brand tenant in one of the best states for triple net lease investing provides peace of mind and surety of income.

Not sure which states are the best for NNN investing and why? This article provides information based on decades of experience and the latest research on which US states we feel provide the best opportunities.

US States with No Income Tax or Capital Gains Tax

When you search for a NNN investment, it may be beneficial to look at investment-grade properties in one of eight states with no income tax, as they do not impose a capital gains tax either. Those states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.

North Dakota is also one to consider. Income tax levies range from 1.10% to 2.90%; the top rate is among the lowest of the states that have an income tax.

New Mexico doesn’t tax capital gains, even though it has a state income tax. Additionally, 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, depending on your income bracket and in which state you file taxes and/or purchase, you could save tens of thousands of dollars, allowing that extra income to work for you.  

2023 Tax Reform Update by State

According to the Tax Foundation, on January 1, 2023, thirty-eight states have noteworthy tax changes taking effect. Most changes represent net tax reductions (click here to see all 2023 tax changes in 38 states). Those of note to NNN investors, which went into effect January 1, 2023, may include:

  • Individual income tax rate reductions in Arizona, Idaho, Indiana, Iowa, Kentucky, Mississippi, Missouri, Nebraska, and New Hampshire (interest and dividends income only); New York, and North Carolina.
  • Massachusetts implemented an income tax rate increase, converting from a flat to a graduated-rate tax with a new rate of 9% on income exceeding $1 million.
  • Oklahoma is the first state to make 100% bonus depreciation permanent for qualifying investments.
  • Iowa’s nine income tax rates have consolidated into four. The top rate decreased from 8.53 to 6%. Iowa’s graduated-rate tax structure is also shifting to a flat tax rate of 3.9% in 2026.
  • Iowa now exempts retirement income and certain farm rental income from taxation and is phasing out its inheritance tax by 2025.
  • Nebraska reduced the inheritance tax for all classes of beneficiaries, including immediate relatives, remote relatives, and non-related individuals, by reducing rates and increasing exemptions. These changes apply to beneficiaries of decedents who die on or after January 1, 2023.
  • Kentucky, Maryland, New Jersey, and Pennsylvania are the last remaining states to tax beneficiaries on the value of their inherited property.
  • In Washington, qualifying transfers of real property to be used for low-income housing will be exempt from the real estate excise tax (REET).

2 people at a laptop, pne person pointing with a pen at the screen that says Tax Incentives

The NNN Investment’s US Location

One characteristic to evaluate when determining the strength and potential of a NNN investment is its location. Though most NNN properties are in prime locations within their communities and securely backed by investment-grade corporations with long-term, guaranteed leases, understanding the property’s US location and how it may influence your success adds an extra layer of assurance.

US states and areas within those states with steady population growth can indicate a rising opportunity for success. For example, if you wanted to purchase a Dollar General, it’s helpful to know that stores typically build in suburban or rural communities with an eye on population growth, which is their niche, so what may not be a prime location for a car wash may be a perfect location for DG. Understanding the brand and obtaining community growth data and financials is the best way to go about determining if the location is solid.

Best NNN Investment States: Population Growth Mirrors Triple Net Lease Market Trends

The US Census Bureau’s 2020 census results show the percentage change in population per state from the previous census. The figures shown for the states with the highest growth percentage align with the triple net lease market growth trend. Therefore, we recommend when searching for your ideal property, consider the following states (percentage change of population shown in parentheses).

  • Utah (+18.4%)
  • Idaho (+17.3%)
  • Texas (+15.9%) no state income tax
  • North Dakota (+15.8%) very low state income tax
  • Nevada (+15%) no state capital gains tax
  • Florida (14.6%) no state income tax
  • Washington (14.6%) no state income tax
  • Arizona (11.9%)
  • Georgia (10.6%)
  • South Carolina (10.7%)
  • Montana (9.6%) credit on state income tax
  • North Carolina (9.5%)
  • South Dakota (8.9%) no state income tax
  • Tennessee (8.9%) no state income tax

From 2019–2020, the five states with the highest growth rate (versus the population percentage increase from the last census) were Idaho, Arizona, Nevada, Utah, and Texas – all between 1–2.12%. This doesn’t sound like much, but in terms of actual people, take Texas, for example, its population grows by roughly 1000 people per day.

According to World Population Review, “In Nevada, real estate rental and leasing was the fastest growing industry in the states by total economic output due to the growing demand for housing. Additionally, this has led to growing home prices, with the average home value currently around $307,360.”

The supply-and-demand trends in the triple net lease real estate market mirror these population growth trends. The demand for net lease properties is strong, and we don’t anticipate that changing any time soon.

Little matchbox car on a paper roadmap

Population Growth + Economic Growth = Profitable NNN Investing

Population growth usually means economic growth, and when both are present, you have a solid success indicator for a NNN property investment. Additionally, if the state and community where you hope to invest have high or rising employment, traditionally, this brings an increase in consumers with discretionary income. These consumers contribute to investment success as they frequent NNN properties – retailersfast-food restaurantspharmaciesauto parts storesconvenience storesgas stationscoffee shops, and medical and dental clinics.

It’s important to note that many states in Mid-America are overlooked when it comes to the desired NNN lease property, though they are viable locations. The most popular NNN investment states tend to be in the southeast and southwest, such as Florida and Texas, which are warm climates that see an influx of new residents and vacationers. However, many fly-over states also have steady populations and growing communities, and NNN properties in these locations often offer higher cap rates. If the tenant is a national brand, such as Dollar General, Starbucks, or 7-Eleven, no matter where the property is, it should have the same long-term, corporate-guaranteed lease structure as any other location.

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How do You Find a NNN Property in a Vast Country with Countless Communities?

How do you find a NNN property in a vast country with countless communities? With thousands of Dollar Generals, Walgreens, Auto Zones, Firestone, 7-Elevens, DaVita and Fresenius clinics, you would think it would be easy. However, these prime properties sell fast, often never making it on the open market. In the current marketplace, whether you are new to NNN investing or you already own triple nets, engaging an experienced, well-known Westwood Net Lease Advisor may be the ONLY way to find and purchase a NNN property that meets your financial and lifestyle goals. This free advisory service is invaluable to purchasing your ideal property, no matter where it’s located. A NNN lease advisor will know which states and areas within those states are growing, and just as importantly, which areas to avoid.

Even if you are a seasoned investor, never has a buyer’s advisor in your corner been as critical to getting an offer accepted on a prime NNN property and closing the deal. And there is no downside to this personal representation, quite the opposite. You can carry on with your busy life while your advisor represents your best interests throughout the entire transaction, at no cost to you.

A reputable NNN buyer’s advisor will have a national network of sellers, developers, and brokers, and have his or her finger on the pulse of the nation and the countless communities where triple nets are sold.

American Flag with puzzle pieces that say

To Wrap it Up – The Best US States for NNN Investments

As you can see, there are many states with population growth, economic growth, and the potential for you to purchase a triple net property that’s located in a profitable area. Many of these states also offer income tax and/or capital gains tax benefits, which, depending on where you file your taxes, can help improve your internal rate of return – Utah, Idaho, Texas, North Dakota, Nevada, Florida, Washington, Arizona, Georgia, South Carolina, Montana, North Carolina, South Dakota, and Tennessee. These may be the best states in which to search, or you may want to evaluate other factors, such as cap rate, lease type, and up-and-coming locations.

The good news is that when it comes to NNN investments, most factors are relatively equal – tenants tend to be low-risk, investment-grade, multibillion-dollar brands that operate with guaranteed, long-term leases in prime locations. However, once you determine the type of triple net lease asset that fits your financial goals, you also want to consider the most comfortable location for your lifestyle needs – nearby or out-of-state. With absolute triple net lease properties, there is no downside to buying in another state as there are no landlord responsibilities.

Westwood Logo in blue/goldTo Learn More About Triple Net Lease Investing, Contact Westwood for a Free Consultation

If you want to learn more about the best place to purchase a triple net lease investment – one that fits your exact objectives – and utilize Westwood Net Lease Advisors’ nationwide network and knowledge, let us know how we can help. Our consultations are free, as is our buyer representation. 314-997-5227

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