The short answer
Underwrite the lease before the building: remaining term and options, rent escalators, which expenses the tenant truly pays, the guarantor's credit and the store's own sales or rent coverage, then price the cap rate against that risk and the value of the box if the tenant leaves. Public net-lease REIT filings give a benchmark: one reports 2025 U.S. acquisitions with a 13.7-year weighted average lease term, another bought middle-market sale-leasebacks at 7.7% to 8.0% cash cap rates with 1.8% average annual escalators. Most of those documents can be gathered inside 45 days only if you request them while your sale is still in escrow.
At a glance
| Lease term benchmark | Realty Income 2025 U.S. acquisitions: 13.7-year weighted average lease term |
|---|---|
| Cap rate benchmark | Essential Properties 2025 acquisitions: 7.7% to 8.0% cash cap rate by quarter |
| Rent escalators | Essential Properties: 97.9% of rent escalates, 1.0% to 4.0% a year, 1.8% weighted average |
| Credit mix | Realty Income: 32.2% of rent from investment-grade clients at year-end 2025 |
| Re-leasing benchmark | Realty Income re-leased units in 2025 at 103.9% of prior rent |
| Identification | Three properties of any value, or any number within 200% of what you sold |
| Debt | Debt paid off at sale is boot unless offset by new debt or added cash |
The lease is the asset, so abstract it before you look at the cap rate
A triple-net lease shifts taxes, insurance and maintenance to the tenant, but leases labelled NNN vary. Read every page and amendment for who replaces the roof, the structure and the parking lot, whether the tenant can go dark and keep paying, whether it can assign the lease and to whom the guaranty then runs, and whether a right of first refusal or purchase option sits in the lease.
Escalators decide whether the rent keeps up with costs over a long hold. Essential Properties' 2025 Form 10-K reports that 97.9% of its annualized base rent provides for increases generally ranging from 1.0% to 4.0% a year, a 1.8% weighted average, and that 97.3% of its rent is triple-net. A flat lease for the base term with bumps only in the options is a different investment from one that grows every year.
Remaining term is what your exit buyer will pay for. A lease with 14 years left today has 9 left if you sell in five years, and the pool of buyers and lenders narrows as the term shortens.
Tenant credit means the guarantor, the rating and the store's own numbers
Find out who signs the guaranty: the parent company, an operating subsidiary or a franchisee. Realty Income's 2025 Form 10-K reports that 32.2% of its annualized base rent came from investment-grade clients, their subsidiaries or affiliates, and that about 40% of the income from its 2025 acquisitions came from investment-grade rated clients. A rating applies to the entity that has it, not to a franchisee operating the same brand.
Then ask for the store's own numbers. Essential Properties reports that 99.2% of its rent is under leases requiring the tenant to provide unit-level financial statements, and it measures rent coverage as the location's earnings before interest, taxes, depreciation, amortization and rent divided by the rent; its portfolio average was 3.6 times at year-end 2025. A lease that gives you no store reporting leaves you underwriting the brand, not the location.
If the tenant is not rated and will not share store figures, price the property on the land and building value, not on the lease.
Cap rates follow term and credit, and filed acquisitions show the range
A cap rate is first-year net rent divided by price. Realty Income's 2025 filing reports 180 U.S. property acquisitions for $1,240.3 million with a 13.7-year weighted average lease term, and an initial weighted average cash yield of 7.0% on all 2025 real estate acquisitions, defined as contractual first-year cash net operating income divided by total cost.
Essential Properties, which buys mostly from middle-market operators through sale-leasebacks, reported 2025 acquisition cash cap rates of 7.8%, 7.9%, 8.0% and 7.7% by quarter, with lease terms of 17.5 to 19.5 years and rent coverage of 3.0 to 5.9 times, and sold leased assets at cash cap rates of 6.6% to 7.3%. Those are institutional portfolio numbers, not quotes for any single property, but they show the trade: a higher cap rate pays you for weaker credit, smaller operators or a shorter remaining term.
Hypothetical: a $3,000,000 building with $210,000 of net rent is a 7.0% cap rate. If the rent is flat for ten years and the tenant has no rating, compare it with a property at 6.5% whose rent rises 1.5% a year, and run your own numbers with your CPA.
Residual value: what the box is worth the day the tenant leaves
Every single-tenant property eventually goes dark or renews at a new rent. Realty Income reported re-leasing units in 2025 at 103.9% of the prior rent, but that is a portfolio of thousands of properties with a dedicated asset management team; one building rises or falls on its own location, size and layout.
Underwrite three numbers: the land value, the cost to re-tenant the building including downtime and improvements, and the market rent a replacement tenant would pay. A drive-thru on a corner lot re-lets more easily than a purpose-built format in a weak trade area, and contract rent far above market is a warning, not a bonus.
This is also the main difference from a DST. Rev. Rul. 2004-86 bars a DST trustee from entering new leases except in a tenant's bankruptcy or insolvency, so the trust cannot re-tenant at all, while you can. The DST versus NNN comparison sets out that trade.
Financing and the exchange equation decide how much property you must buy
To defer all gain you need replacement property worth at least what you sold and enough new debt or added cash to offset any loan paid off; the Form 8824 instructions treat net liabilities assumed by the buyer, after offsets for liabilities you take on and cash you add, as boot. Buying a smaller NNN property for cash leaves the difference taxable.
A lender on a single-tenant property underwrites the same lease you do: remaining term against the loan term, guarantor credit, and the tenant estoppel and subordination agreement. Order those documents when you sign the purchase contract, because a tenant that takes weeks to return an estoppel can push the closing toward day 180.
Before day 45: the documents to have in hand and the backup to name
Reg. section 1.1031(k)-1(c)(4) lets you identify three properties of any value, or any number whose total value is within 200% of what you sold, and an identification can be revoked in writing before the period ends. Name a backup, because a lease or estoppel problem found on day 50 cannot be fixed by substituting a new property.
Start the Phase I environmental assessment early: the federal all-appropriate-inquiries rule requires it within one year before acquisition, with key components within 180 days. A fractional alternative such as a net lease DST or a direct title security can be your backup or part of a split, and the single-tenant NNN sale page covers the other side of the trade.
- Lease, all amendments, guaranty and any assignment documents
- Rent payment history and tenant estoppel
- Store sales or unit-level financials, and the guarantor's financial statements or rating
- Title commitment, survey, and any right of first refusal or purchase option
- Phase I environmental report and property condition report
- Lender term sheet, subordination agreement and appraisal timing
Related questions
Is a higher cap rate always better for an exchange buyer?
No. A higher cap rate usually reflects weaker credit, a shorter remaining term, flat rent or a harder-to-re-let building, and the filed REIT data show buyers being paid more for exactly those risks.
Can I identify a NNN property and a DST on the same list?
Yes. Under the three-property rule you can name a building and one or two DST offerings as backups, as long as the list meets the three-property or 200% limit.
Does a corporate guaranty matter if the franchisee pays the rent?
Yes. If the lease is guaranteed only by the franchisee, the brand's credit rating does not stand behind it, so underwrite the franchisee's statements and the store's sales.
What if the tenant will not sign an estoppel before day 45?
Identification does not require a signed estoppel, but closing usually does. Identify a backup so a late or unfavorable estoppel does not leave you without an eligible property.
How does depreciation work on the NNN property I buy?
Your carried-over basis generally continues on the old schedule and only new money above it starts a new 39-year schedule; see our page on depreciating replacement property for the details.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.