1031 Exchange Triple Net Lease Properties: NNN vs. DST

Key takeaways

• NNN stands for triple net. In a triple net lease, the tenant pays the three main property costs, which are taxes, insurance and maintenance, on top of base rent. Lease terms vary, so read who pays for the roof and structure.
• You can own a net lease property two ways in a 1031 exchange. You can buy the whole building yourself, which is called fee simple ownership. Or you can buy a fractional interest, most often through a Delaware Statutory Trust (DST).
• Owning NNN directly gives you control. You choose the tenant, the loan and when to sell, and you avoid sponsor fees. In exchange, you carry the full risk of one tenant and one building.
• A DST gives up control in return for passive ownership, lower minimums and the chance to spread money across several properties. It also carries up-front fees, illiquidity and sponsor risk, and distributions are not guaranteed.
• A cap rate is a property's net operating income divided by its price. Net lease cap rates mostly reflect the tenant's credit, the years left on the lease, rent increases and interest rates.
• In my offering records, 36 of 76 DST offerings (47%) use no debt, and the median minimum investment is $100,000.

What is NNN in real estate?

NNN is short for "triple net." It describes a type of lease, not a type of building.

In a triple net lease, the tenant pays base rent plus three other costs: property taxes, the building's insurance and maintenance. Those three costs are the three "nets." The landlord collects rent that is "net" of them, which means the landlord doesn't pay them.

Compare that with an apartment. An apartment owner collects rent, then pays the property tax bill, the insurance premium, the plumber and the roofer out of that rent. The owner's income goes up and down with those costs. In a true triple net lease, those costs are the tenant's problem.

The IRS's own description of a DST in Revenue Ruling 2004-86 used this kind of lease. In the ruling's facts, the tenant "is to pay all taxes, assessments, fees, or other charges imposed on" the property. That's the core of a net lease.

The different kinds of net leases

People use the word "net" loosely. Here's how the terms usually break down. Leases vary a lot, so the actual lease always controls.

The gap between a "triple net" and an "absolute net" lease matters more than the label. Many leases called NNN still leave the roof, the structure or the parking lot with the landlord. A new roof on a large store can cost a lot. Read the repair section of the lease before you trust the label.

What a net lease property usually looks like

Most net lease properties have one tenant. Common examples include drugstores, dollar stores, auto parts stores, quick-service restaurants, banks, medical offices, distribution warehouses and some industrial buildings.

The leases are often long. A new lease may run 10, 15 or 20 years, with options for the tenant to renew. Rent often rises on a schedule. That might be a small increase every year or a larger one every five years. Some leases are flat for the whole first term.

Why do 1031 investors look at triple net lease properties?

People selling apartments, rentals or older commercial buildings tend to give a few common reasons.

They're tired of managing property

Many sellers have spent decades handling tenants, repairs and late-night calls. A single-tenant net lease looks like the opposite: one tenant, one rent check and no repair calls. It isn't quite that simple, as I'll explain, but it's much lighter work than an apartment building.

They want predictable rent

A long lease with a strong tenant sets out the rent for years ahead. That can make planning easier. Rent is a contract term, but it is not guaranteed income. A tenant can go bankrupt, and a lease can end.

They want to stay in real estate they can see

Some investors like owning a building they can drive past. A net lease property lets them keep a real, specific asset with their name on the deed.

The 1031 rules fit

A net lease property is real estate. Under Section 1031 of the tax code, real property held for business or investment can be exchanged for other real property "of like kind." Like kind is broad for real estate. The IRS fact sheet on like-kind exchanges says "Most real estate will be like-kind to other real estate." So an apartment building can generally be exchanged for a drugstore, and a rental house for a warehouse.

Can a triple net property qualify for a 1031 exchange?

Generally, yes. A net lease building you buy and hold for investment is real property. The lease type doesn't change that.

Fee ownership and long leaseholds

The Treasury regulation on like-kind property, 26 CFR 1.1031(a)-1, gives examples of real estate that is like kind. One is the exchange of "a leasehold of a fee with 30 years or more to run for real estate." So in some cases, a long leasehold can count as like-kind real estate. A shorter one may not. This comes up with ground leases, and it's a question for your tax advisor.

Held for investment, not for sale

The property must be held for productive use in a business or for investment. Section 1031 "shall not apply to any exchange of real property held primarily for sale." If you buy a net lease building planning to flip it fast, talk with your CPA first.

The timing rules still apply

Every 1031 exchange runs on two clocks. You have 45 days after your sale to identify replacement property in writing. You have 180 days to close, or until your tax return due date (with extensions), if earlier. The IRS fact sheet says "These limits cannot be extended for any circumstance or hardship," except in presidentially declared disasters.

Those deadlines are where direct net lease purchases most often get into trouble. I'll come back to that in the step-by-step section.

What is fee simple vs. fractional ownership in a 1031 exchange?

These two terms come up in every conversation about 1031 exchange fractional ownership.

Fee simple ownership means you own the whole property outright. Your name, or your LLC's name, is on the deed. You make every decision.

Fractional ownership means you own a share of a property along with other investors. In 1031 exchanges, the two main fractional structures are:

• A Delaware Statutory Trust (DST). You own a beneficial interest in a trust that holds the deed. A trustee makes the limited decisions allowed. My complete guide to Delaware Statutory Trusts explains how they work.
• Tenancy in common (TIC). You hold your own deed to an undivided share and vote on major decisions. Sponsored TICs are rare today. I compare the two fractional structures in my guide to DST vs. TIC.

A properly structured DST interest can qualify as 1031 replacement property under Rev. Rul. 2004-86. So the question for most net lease buyers isn't "Can I own this through a DST?" It's "Do I want the whole building, or a slice of several?"

NNN vs. DST: a side-by-side comparison

Here's how owning a net lease property directly compares with owning a DST interest. These are general features, and every property and offering is different.

The table boils down to one trade. Direct ownership gives you control and concentration. A DST gives you diversification potential and passivity, and it charges for both.

What are net lease cap rates, and what drives them?

A cap rate, short for capitalization rate, is the property's yearly net operating income divided by its price. Net operating income, or NOI, is rent minus the operating costs the landlord pays. In a true triple net lease, the landlord pays few costs, so NOI is close to the rent.

Here's a hypothetical with round numbers. A building leased to one tenant pays $110,000 a year in rent. The landlord pays no expenses. The price is $2,000,000.

• Cap rate = $110,000 ÷ $2,000,000 = 5.5%

The cap rate tells you what the property earns before any loan. It's a way to compare properties of different sizes.

What pushes a cap rate up or down

A lower cap rate means buyers are paying more for each dollar of rent. That usually means they see less risk. A higher cap rate usually means more perceived risk. Here are the main drivers in net lease.

1. Tenant credit. A large company with an investment-grade credit rating usually trades at a lower cap rate than a small local operator. Investment grade means a rating of BBB- or higher from S&P (or Fitch), or Baa3 or higher from Moody's.
2. Who backs the lease. A lease signed or backed by the parent company is usually stronger than one signed by a franchisee or a single-store subsidiary. Find out exactly which company is on the hook for rent.
3. Years left on the lease. A property with 15 years left usually trades at a lower cap rate than the same one with three years left. When the lease nears its end, the risk of vacancy rises.
4. Rent increases. A lease with regular rent bumps is worth more than a flat lease, all else equal. Flat rent loses ground to inflation over time.
5. Landlord duties. An absolute net lease is worth more than a lease that leaves the roof and structure with you.
6. Location and real estate quality. If the tenant left, could someone else use the building at a similar rent? A well-located, flexible building lowers your risk. A special-purpose building in a weak spot doesn't.
7. Interest rates. When borrowing costs rise, buyers usually want higher cap rates. That can push prices down even if nothing changed at the property.

Cap rate is not your return

A cap rate is a snapshot of income compared with price. Your actual return depends on your loan, your costs, rent changes, vacancy and the price you sell for later. It can be higher or lower than the cap rate, and you can lose money.

Is a DST distribution rate the same as a cap rate?

No, and mixing them up is easy. A cap rate is the property's net operating income divided by its price. It's measured before any loan payments and before any investor-level fees.

A DST's distribution rate is the cash the sponsor projects to pay investors each year, divided by investor equity. It's measured after loan payments, trust-level fees and reserves. It's also measured on equity that already reflects the up-front offering costs.

So the two numbers describe different things, and you shouldn't line them up side by side. To compare like with like, put the property-level cap rate in the PPM next to a direct building's cap rate. Or compare a DST's projected distribution with your own projected cash flow after the loan on a direct purchase. Either way, projected distributions are not guaranteed.

Why the exit cap rate matters

Here's a hypothetical. You buy the $2,000,000 building from the example above at a 5.5% cap rate. Ten years later, the rent is still $110,000, because the lease was flat. Only five years remain on the lease, and interest rates are higher. Buyers now want a 6.5% cap rate.

• New value = $110,000 ÷ 6.5% = about $1,692,000

That's a drop of about $308,000, or roughly 15%, with the tenant still paying every dollar of rent. That's the risk people miss with flat, long net leases. The rent stays the same, but the value can fall as the lease gets shorter and rates change.

How much work does a triple net property really need?

Less than an apartment building, but more than none. NNN means low management, not no management.

Here's what a direct owner still handles:

• Checking that taxes are paid. If the tenant pays the tax bill directly, confirm it was paid. If you pay and get reimbursed, track that.
• Insurance. Confirm the tenant's coverage meets the lease. Get updated certificates every year.
• Roof and structure. If the lease leaves these with you, you'll budget for them and handle repairs.
• Rent increases. Some tenants miss scheduled bumps. Someone has to notice and send the letter.
• Lease options. Track renewal deadlines and what notice the tenant must give.
• Tenant health. Watch the tenant's financial news. If its credit weakens, you may want to sell before the market notices.
• Re-leasing. When the lease ends, you find a new tenant, negotiate terms and possibly pay for improvements and leasing commissions.

A DST investor does none of that. The sponsor's team handles it, and you pay for that service through fees.

How does debt work for a direct NNN purchase compared with a DST?

Debt on a direct purchase

When you buy a net lease property yourself, you arrange the loan. The lender looks at the tenant, the lease and you. For smaller loans, lenders often want a personal guaranty, which means your own assets back the loan. Larger loans on strong-credit tenants may be non-recourse, with the usual carve-outs for things like fraud.

The upside is control. You choose the loan size, the term and the lender. You can refinance later to pull out cash or lower your rate. You can pay the loan down when you want.

Debt in a DST

In a DST, the loan is at the trust level and arranged by the sponsor before you invest. You don't qualify for it or sign it. DST loans are typically non-recourse to investors. The catch is that the trust generally can't refinance or change the loan later. My guide to DST debt and leverage covers how that plays out.

Replacing debt in your exchange

To defer all of your gain, you generally need to buy replacement property worth at least what you sold, net of selling costs. You also need to reinvest all your cash proceeds. If you had a loan on the old property, the new property usually needs at least as much debt, or you add cash to make up the gap.

A direct purchase lets you size the loan to hit your number. DSTs come with a set loan-to-value ratio, or LTV, which is the loan divided by the property's value. You can mix leveraged and all-cash DSTs to hit your target.

What is the real risk of one tenant and one building?

Concentration is the biggest risk in direct net lease ownership. With one tenant, your rent can drop to zero overnight.

When the tenant leaves

When a single-tenant building goes vacant, you pay the property taxes, insurance and upkeep yourself. You may still owe loan payments. You may need to spend money on improvements and commissions to attract the next tenant. A building designed for one brand may need real work to suit another.

When the tenant "goes dark"

Some tenants close a store but keep paying rent until the lease ends. That's called going dark. Your rent still arrives, but the empty store can hurt the property's value and its odds of renewal. Read whether the lease requires the tenant to keep operating.

When the tenant files for bankruptcy

Bankruptcy law lets a tenant reject a lease. Under 11 U.S.C. § 365, the trustee, subject to court approval, "may assume or reject any executory contract or unexpired lease of the debtor."

If a lease is rejected, the landlord's claim for future rent is capped. Under 11 U.S.C. § 502(b)(6), it's limited to the rent for "the greater of one year, or 15 percent" of the remaining term, "not to exceed three years," plus unpaid rent. That claim is paid alongside other creditors, often at less than full value. A long lease is only as strong as the tenant behind it.

The DST answer to concentration

A DST can hold several properties, or you can split your exchange across several DSTs. That spreads tenant risk. It doesn't remove it. A single-tenant net lease DST has the same one-tenant risk as owning the building directly, just in a smaller slice. My guide on how many DSTs you should own walks through how people think about spreading their equity.

Notice to Members 05-18, issued in 2005 by NASD (the regulator now called FINRA) about fractional 1031 investments, said that "Concentration of an investor's assets in a single asset class, however, is not suitable for many investors." That applies whether you own one building directly or a few DST interests.

What should you know about pharmacy and dollar-store NNN properties?

Pharmacies and dollar stores have been two of the most common single-tenant net lease properties for 1031 buyers. They're popular for good reasons, and they carry specific risks.

Why buyers like them

• Brand-name tenants. Many are leased to national chains.
• Long leases. New leases often run 10 to 25 years, sometimes with renewal options.
• Price points that fit exchanges. Many sit in a range that matches the equity from a typical rental or small apartment sale.
• Lighter landlord duties. Many are triple net or close to it.

What to check carefully

• Store-level performance. A chain can close stores it considers weak, even while paying rent on the lease. Ask what you can learn about this store's sales, though tenants often don't share it.
• Changing retail habits. Pharmacies face pressure from mail-order and online prescriptions. Discount retail is crowded and sensitive to cost changes.
• Flat rent. Some dollar-store leases have flat rent for the whole first term. As shown above, flat rent can lead to falling value as the lease ages.
• Building reuse. A drive-through pharmacy on a busy corner may suit many future tenants. A small-town dollar store building may suit few.
• Who signed the lease. Confirm whether the parent company or a subsidiary backs the rent.
• Roof and parking lot. Some leases in these categories leave the roof, structure or parking lot with the landlord.

None of this means these properties are a bad choice. It means the label "national tenant on a long NNN lease" isn't due diligence. It's the starting point for it.

A worked example: one dollar store, or a split across DSTs?

This is a hypothetical example with round numbers. It doesn't represent any property, offering or client. It isn't tax advice, and your CPA should run your real figures.

The starting point

Say you sell a small apartment building for $2,000,000. You pay $50,000 in selling costs and pay off a $600,000 loan.

• Net sale price: $2,000,000 − $50,000 = $1,950,000
• Cash held by your qualified intermediary: $1,950,000 − $600,000 = $1,350,000

To defer all the gain, you generally need to buy at least $1,950,000 of replacement property, reinvest all $1,350,000 of cash and take on at least $600,000 of debt or add cash to cover any shortfall.

Option A: buy one dollar store directly

You buy a single-tenant dollar store for $2,000,000. You put in the $1,350,000 and take a $650,000 loan. The lease has 10 years left with flat rent of $120,000 a year, which is a 6.0% cap rate. Say your loan payments are $50,000 a year.

• Rent: $120,000
• Loan payments: −$50,000
• Cash flow before reserves: about $70,000 a year, or about 5.2% on your $1,350,000

You've hit your value and debt targets. You control the asset. Your up-front costs are mostly closing costs and loan fees.

Now say the tenant leaves when the lease ends in year 10. The building sits empty for 12 months. You pay property taxes of $25,000, insurance of $8,000 and maintenance of $7,000. You also pay $50,000 of loan payments.

• Year 11 cash flow: about −$90,000

Then you'll likely spend money on improvements and commissions to land a new tenant. And the value of an empty single-tenant building can be far below what you paid.

Option B: split across three DSTs

You put $450,000 into each of three DSTs from different sponsors:

You've hit the same targets. Your money now sits in three property types, with three sponsors and many tenants. One tenant leaving no longer means losing all your income.

But the trade-offs are real. A meaningful share of your equity goes to up-front fees and offering costs. You can't refinance, re-lease or choose when to sell. You can't get out early. Distributions are not guaranteed, and any of the three could lose money. My guide to DST fees and returns breaks down where the money goes.

Option C: a mix

Some investors land in between. They buy one property directly with most of the money and use a DST for the rest. The DST can absorb leftover cash or help hit the debt target. It can also serve as a backup if the direct deal falls through, as long as you identified it in writing within the 45-day period.

What the example shows

Option A gives you control, lower costs and one point of failure. Option B gives you spread and passivity, at the cost of fees and control. Neither removes risk. The right answer depends on how much you want to manage, how much concentration you can live with and how much the fees matter to you.

What are the real advantages of owning an NNN property directly?

I want to be fair here, because for some people direct ownership is clearly the better fit.

You control everything

You pick the tenant, the location, the lease and the loan. You decide when to sell. If an offer comes in that you like, you can take it.

You can refinance

If the property rises in value, you can refinance and pull cash out without selling. A DST can't.

Your costs are lower and clearer

You don't pay selling commissions, offering costs or sponsor fees. In many direct purchases, the seller pays the brokerage commission. Your costs are mainly closing costs, loan fees, inspections and legal review.

You can add value

You can negotiate an early lease extension, which can raise the property's value. You can add a pad site, re-lease to a stronger tenant or sell at a good moment. As a DST investor, you can't make any of those calls. The trustee generally can't sign new leases or renegotiate the existing one, and the sponsor decides when to sell.

Anyone can buy

You don't need to be an accredited investor to buy a building. Most DSTs are open only to accredited investors.

Simple tax reporting

You own the property yourself, so you report it on your own return. Your depreciation is your own. Under Section 168 of the tax code, nonresidential real property is depreciated over 39 years. Your CPA will work out how your carried-over basis fits in.

What are the real advantages of a DST over owning NNN directly?

Spread across tenants and properties

With the same equity, you can own pieces of several properties instead of one. That limits the damage any one tenant can do.

Truly passive

No tax bills to check, no insurance certificates, no re-leasing. You read the reports.

No loan to qualify for

The sponsor arranges the debt. DST loans are typically non-recourse to investors, so your personal assets aren't backing the loan.

Access to larger properties

A DST can own an institutional distribution center or a large apartment community. Few individual 1031 investors could buy one alone.

Speed and precision in the exchange

DSTs already own their properties. Closing can often take two to three business days once paperwork, funding and approvals are complete. You can also size each DST investment closely, above each offering's minimum, to hit your value and debt targets.

The trade-offs

DSTs are illiquid securities. You have no control. Fees are significant. The trust generally can't refinance or re-lease. You rely on the sponsor. Distributions are not guaranteed, and you can lose your entire investment. These aren't footnotes. They're the price of the advantages above.

How do you buy a triple net property in a 1031 exchange, step by step?

Here's a practical way to approach a direct net lease purchase in an exchange, with a DST backup in mind.

Step 1: Start before you list your property

Talk with your CPA about your gain, your basis and the debt you'll need to replace. Start looking at the net lease market before your sale closes. Good properties can take weeks to find and longer to negotiate.

Step 2: Hire a qualified intermediary

A qualified intermediary, or QI, is the company that holds your sale proceeds so you never touch them. The IRS fact sheet says "You can not act as your own facilitator," and neither can your agent, accountant or attorney. The QI must be in place before your sale closes.

Step 3: Set your targets

Write down three numbers: the minimum replacement value, the cash you must reinvest and the debt you must replace. Every property you consider should be measured against them.

Step 4: Screen the lease, not just the tenant name

Read the lease or a detailed abstract. Who backs the rent? How many years are left? Are there rent increases? Who pays for the roof, structure and parking lot? Can the tenant go dark? Are there early termination rights?

Step 5: Identify within 45 days

Under 26 CFR 1.1031(k)-1, you identify replacement property in a signed written document delivered within 45 days. You can identify up to three properties of any value, or more if their total value doesn't exceed 200% of what you sold. A common plan is to name your direct purchase plus one or two DSTs as backups. My guide to the 1031 identification rules explains the options.

Step 6: Do your due diligence

Order a title report, a survey, an environmental report and a property inspection. Get an estoppel certificate, which is the tenant's signed confirmation of the lease terms and that no defaults exist. Line up your loan early. Lenders on net lease deals often want to review the lease and the tenant's finances.

Step 7: Close within 180 days

Close on the direct purchase within 180 days of your sale, or by your tax return due date (with extensions), if earlier. If it falls apart, move to a backup you identified in writing within the 45-day period. A backup you didn't identify can't be used. A DST can often close in two to three business days with complete paperwork, but offerings can fill up, so don't wait until the last week.

Step 8: Report the exchange and set up your ownership

Report the exchange on IRS Form 8824 for the year of the sale. Set up a simple system to track tax payments, insurance certificates, rent bumps and lease deadlines.

Mistakes to avoid with net lease properties and DSTs

These are common mistakes to watch for.

1. Buying the tenant name, not the lease. A famous brand doesn't help if a weak subsidiary signed the lease. Find out who backs the rent.
2. Ignoring the years left on the lease. A short remaining term is a big risk. Price it in.
3. Assuming NNN means no landlord costs. Read who pays for the roof, structure and parking lot.
4. Overlooking flat rent. Flat rent can mean falling value as the lease ages, even with a healthy tenant.
5. Paying too much because the deadline is near. Day 40 of a 45-day window is a bad time to negotiate. Identify backups so you can walk away.
6. Putting all your exchange into one building without a plan for vacancy. Keep reserves, or consider spreading some equity across other properties.
7. Forgetting the debt target. Buying a property with less debt than you paid off can create taxable boot, unless you add cash. Boot is the part of an exchange that isn't like-kind property, such as cash or debt relief.
8. Treating a DST as a perfect substitute. A DST fixes some problems of direct ownership but adds fees, illiquidity and sponsor risk. Read the PPM, the private placement memorandum that describes the offering.
9. Chasing the highest cap rate. A high cap rate usually signals higher risk. Ask why it's high.
10. Skipping your advisors. A 1031 exchange is a tax decision and a legal decision. Bring in your CPA, attorney and QI early.

What are the risks of owning NNN directly or through a DST?

Both paths carry real risk. Here are the main ones.

• Loss of principal. Property values can fall. You can lose some or all of your investment, and debt increases that risk.
• Tenant risk. A tenant can leave, go dark or go bankrupt. With one tenant, your income can drop to zero.
• Lease rollover. When a lease ends, you may face vacancy, re-leasing costs and lower rent.
• Interest rate risk. Rising rates can push cap rates up and values down.
• Liquidity. A direct property takes months to sell. A DST generally can't be sold until the sponsor sells the property. The SEC's bulletin on private placements says "you should be prepared to hold the securities indefinitely."
• Distributions are not guaranteed. DST distributions can be reduced or stopped.
• Limited control in a DST. You have no say in leasing, financing or sale timing.
• Sponsor risk in a DST. The sponsor's judgment, finances and conflicts directly affect your investment.
• Fees. DSTs carry up-front and ongoing fees that reduce returns.
• Leverage. Debt magnifies losses as well as gains.
• Tax risk. If your exchange isn't completed properly, or a DST fails its tax requirements, your deferred gain can become taxable. Tax laws can change.

How I look at net lease properties

My background is in applied mathematics and applied statistics, which I studied at Babson College. Before I founded Baker 1031 Investments, I spent years in real estate acquisitions, management and development at ValueRock Realty Partners, Faris Lee Investments, Westport Capital Partners and Arbor Bay Capital Partners. I've been involved in more than $10 billion of real estate investment activity.

A sound way to read a net lease deal is to start with the lease, then the tenant, then the real estate under it. Ask: if the tenant left tomorrow, what would the building be worth, and who would rent it?

For DSTs, my team and I review every offering across five areas, and we partner with outside auditors in each: broker-dealer review, investment manager audit, investment offering review, real estate assessment and institutional underwriting. The review is continuous, not a one-time check. I offer DSTs from more than 20 institutional sponsors, and I track more than 1,100 full-cycle 1031 DST investments for performance.

When we talk, I'll show you the offerings I currently have available, and I'll tell you why I'm considering each one, what I like and where I have reservations. If owning a building directly suits you better, I'll tell you that too. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments is independent of Aurora.

What my data shows

Here's what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast or a promise about any future offering.

One in five offerings in my records is net lease

15 of 76 offerings (20%) are net lease, and that group includes energy royalty programs. Net lease is the third-largest category, behind multifamily and industrial.

If you like the net lease idea but not the concentration, this spread matters. You can hold a net lease DST alongside other property types. I go deeper on the categories in my guide to DST property types.

The energy royalty programs in this group hold oil and gas mineral and royalty interests, not buildings, and carry their own risks; I cover them in my guide to DST property types.

Nearly half use no debt

36 of 76 offerings (47%) are all-cash. Another 16 (21%) have LTV above 50%. Among offerings that use debt, the median LTV is about 49%. If you need to replace debt from your old property, the leveraged offerings help. If you'd rather avoid loan risk, all-cash offerings are common.

Minimums let you split your exchange

The median minimum investment is $100,000. Minimums range from $25,000 to $500,000, and 21 offerings (28%) start at $25,000. That's what makes a split like Option B possible. A single net lease building needs all of its equity from one buyer.

Distributions and hold periods

Among the 71 offerings that published a projected year-one distribution rate, the median was 4.7%, with a range of 4.0% to 9.0%. These are projections. They are not guaranteed, and actual results can differ a lot. A projected 10-year hold is the most common, at 31 offerings.

Frequently asked questions

What does NNN mean in real estate?

NNN means triple net. In a triple net lease, the tenant pays base rent plus the property taxes, insurance and maintenance. Some leases still leave the roof and structure with the landlord, so read the lease.

Can I do a 1031 exchange into a triple net lease property?

Generally, yes. A net lease building held for investment is real property, and most real estate is like kind to other real estate. You still need to identify property within 45 days, close within 180 days or by your tax return due date if earlier, and use a qualified intermediary.

What is a good cap rate for a net lease property?

There's no single right number. Cap rates depend on tenant credit, years left on the lease, rent increases, landlord duties, location and interest rates. A higher cap rate usually signals more risk, so ask why a property is priced the way it is.

Is a DST's distribution rate the same as a cap rate?

No. A cap rate measures the property's income before debt and fees, while a DST's distribution rate measures the cash projected to reach investors after debt, fees and reserves. Projected distributions are not guaranteed and can be reduced or stopped.

Is a DST better than owning an NNN property?

Neither is better for everyone. Owning directly gives you control, lower fees and the ability to refinance, but concentrates your risk in one tenant. A DST spreads risk and requires no work, but it carries fees, illiquidity and sponsor risk.

What is the difference between fee simple and fractional ownership?

Fee simple means you own the whole property and make every decision. Fractional means you own a share with other investors, usually through a DST in a 1031 exchange. A properly structured DST interest can qualify as 1031 replacement property.

What happens if my NNN tenant goes bankrupt?

The tenant may be able to reject the lease in bankruptcy. Federal bankruptcy law caps the landlord's claim for future rent, and that claim may be paid at less than full value. You'd then carry the building's costs until you re-lease it.

Are pharmacy and dollar store NNN properties a good 1031 investment?

They can fit some investors, because they often have national tenants and long leases. But store closures, flat rent and limited reuse can hurt value. Check who backs the lease, the years left and how easily the building could be re-leased.

Do I need to be an accredited investor to buy NNN property?

Not to buy a building directly; anyone can buy real estate. Most DST offerings, though, are open only to accredited investors. Your advisor can explain the income, net worth and license tests.

Can I split my 1031 exchange between an NNN property and a DST?

Yes. Some investors buy one property directly and put the rest into one or more DSTs. All replacement properties must be identified within 45 days and closed within 180 days or by your tax return due date if earlier, and together they need to meet your value and debt targets.

Can I refinance a DST like I can an NNN property?

Generally, no. A DST's trustee can't take on new debt or renegotiate the loan without converting the trust to an LLC. With a property you own directly, you can refinance whenever a lender agrees.

How long are triple net leases?

New single-tenant net leases often run 10 to 20 years, sometimes longer, with renewal options. What matters for an investor is the time left on the lease when you buy. A short remaining term raises vacancy risk.

Before you act

This guide is for education only. It isn't tax, legal or investment advice. Please confirm every decision with your CPA, attorney and qualified intermediary. DST interests are offered only by private placement memorandum to qualified investors, most are for accredited investors only, they're illiquid with limited control, and you can lose your entire investment.

Sources

• IRS, Revenue Ruling 2004-86
• 26 U.S.C. § 1031, Exchange of real property held for productive use or investment (Cornell LII)
• 26 CFR § 1.1031(a)-1, Property held for productive use in trade or business or for investment (Cornell LII)
• 26 CFR § 1.1031(k)-1, Treatment of deferred exchanges (Cornell LII)
• 26 U.S.C. § 168, Accelerated cost recovery system (Cornell LII)
• 11 U.S.C. § 365, Executory contracts and unexpired leases (Cornell LII)
• 11 U.S.C. § 502, Allowance of claims or interests (Cornell LII)
• IRS Fact Sheet FS-2008-18, Like-Kind Exchanges Under IRC Code Section 1031
• IRS, About Form 8824, Like-Kind Exchanges
• FINRA (NASD) Notice to Members 05-18
• Investor.gov, Private Placements under Regulation D