When it comes to building a strong, low-management portfolio of commercial real estate, investors often gravitate toward net lease assets. But not all NNN leases are created equal. Two of the most hands-off, long-term strategies—Absolute Triple Net (NNN) Leases and Ground Leases—both promise passive income and stable returns.

The question is: Which one is the better buy?

Let’s break it down.

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🔎 What is an Absolute NNN Lease?

An Absolute NNN Lease (sometimes called a “bondable lease”) is the most passive type of lease you can buy. The tenant is responsible for all expenses—including taxes, insurance, maintenance, repairs, and even roof and structure.

As an investor, your only job is to collect the rent.

Common Tenants:

• Walgreens

• Dollar General

• AutoZone

• 7-Eleven

Key Advantages:

• No landlord responsibilities — zero management

• Predictable income — fixed rent with periodic increases

• Often backed by credit tenants with corporate guarantees

• Easy to finance due to minimal risk and steady cash flow

Typical Use Case:

Perfect for 1031 exchange buyers, retirees, or institutions seeking mailbox money with minimal involvement.

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🔎 What is a Ground Lease?

A Ground Lease is a unique type of net lease where the investor owns the land only and leases it to a tenant who builds and owns the improvements (building) during the lease term.

At the end of the lease, ownership of the building reverts back to the landowner—often without compensation.

Common Tenants:

• McDonald’s

• Chick-fil-A

• Bank of America

• Wawa

Key Advantages:

• Appreciation upside — land value can increase significantly over time

• Zero maintenance, since the tenant owns and maintains the improvements

• Tenant has significant “skin in the game” due to their upfront investment in construction

• Potential reversionary interest in valuable improvements at lease end

Typical Use Case:

Ideal for investors with a long-term hold strategy focused on wealth preservation and generational planning.

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📊 Absolute NNN vs. Ground Lease — Side-by-Side Comparison

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💡 Which One Should You Buy?

The answer depends on your investment goals:

✅ Choose an Absolute NNN Lease if you:

• Want consistent monthly income from day one

• Prefer low-risk, credit-backed tenants

• Are nearing retirement or in a 1031 exchange needing immediate cash flow

• Want a shorter to mid-term hold with resale options

✅ Choose a Ground Lease if you:

• Have a longer investment horizon (20+ years)

• Want to preserve wealth across generations

• See potential for land appreciation

• Understand the nuances of lease structures and reversionary value

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🧠 Final Thoughts

Both asset types offer passive income and strong long-term value—but they serve very different strategies. If you’re focused on yield and simplicity, Absolute NNN is hard to beat. If you’re looking for a legacy asset with built-in upside, Ground Leases are the ultimate long-term play.

Whichever route you choose, make sure you’re acquiring well-located properties with national tenants, long-term leases, and solid demographics.

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Looking for an off-market NNN or ground lease deal?
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FAQ’s

1. How do lenders view ground leases compared to absolute NNN leases in terms of financing and loan terms?

Answer:
Lenders are generally more conservative when underwriting ground leases compared to absolute NNN leases. While both lease types offer passive income and creditworthy tenants, ground leases often receive lower loan-to-value (LTV) ratios (typically 50–60%) and may come with shorter amortization schedules or higher rates due to the complexity and long-term nature of the investment.

In contrast, absolute NNN leases with corporate tenants like Walgreens, Dollar General, or 7-Eleven are typically viewed as low-risk, financeable assets, and can command LTVs up to 65–75%, with 25–30 year amortization and competitive fixed rates.

Bottom line: If ease of financing is critical, absolute NNN is usually the path of least resistance.

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2. What happens if the tenant defaults or vacates early in a ground lease vs. an absolute NNN lease?

Answer:
In both lease types, the impact of a tenant default hinges on the lease structure and tenant credit—but the outcomes differ:

• In an absolute NNN lease, the building is part of your collateral. If the tenant vacates, you own the improvements and can re-lease or sell the building. However, you may need to cover maintenance or capital expenses until a new tenant is secured.

• In a ground lease, the tenant owns the improvements and is usually heavily invested in the location. If they default, the landlord may have rights to terminate the lease and potentially take over the improvements—especially in a reversionary ground lease structure. This could leave you with a free-and-clear building, depending on the lease language.

Bottom line: Ground leases typically offer stronger downside protection due to the tenant’s investment in the improvements and potential reversion rights—but require careful lease review.

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3. Can I still do a 1031 exchange into or out of a ground lease, and are there any special IRS considerations I should know about?

Answer:
Yes, you can absolutely do a 1031 exchange into or out of a ground lease, but there’s one key IRS rule to be aware of:

The IRS requires that a ground lease must have at least 30 years of remaining lease term (including options) at the time of purchase to qualify as “like-kind” real estate for a 1031 exchange.

If you’re selling a fee-simple property and exchanging into a ground lease with fewer than 30 years remaining, the IRS may disallow the exchange, considering it a leasehold interest, not a real estate interest.

Bottom line: Always verify remaining term + options total at least 30 years when targeting ground leases for a 1031.