Lease Term vs. Yield: Finding the Right Balance in NNN Acquisitions

In triple net (NNN) investing, one of the most important — and misunderstood — trade-offs is between lease term and yield.

It’s a classic balancing act:

  • Longer lease = lower yield, more security

  • Shorter lease = higher yield, more risk

Most investors want both — but in a competitive net lease market, getting the right mix of cash flow, credit, and lease term takes discipline, experience, and a clear understanding of your investment objectives.

This article breaks down how to think strategically about lease term vs. yield, what red flags to avoid, and which U.S.-based tenants offer the most consistent balance of long-term security and attractive returns.

🔹 Why Lease Term Matters in NNN Acquisitions

Lease term remaining is the cornerstone of NNN risk underwriting. It directly impacts:

  • Cash flow stability

  • Financing eligibility

  • Resale value

  • Tenant retention

The more years remaining on a lease, the more certainty you have that rent will continue to hit your account — without the risk of vacancy, renewal negotiations, or downtime.

Lenders typically require 10+ years of remaining term to offer full leverage and the best rates.

🔹 Why Yield Matters, Too

On the other hand, yield (cap rate) determines how much income you’re actually earning on your investment. High-credit, long-term leases often trade at tight cap rates — especially in core markets.

If you’re yield-focused and want to hit a certain cash-on-cash return, you may need to:

  • Buy a shorter lease

  • Accept a lower-credit tenant

  • Or invest in secondary markets

But here’s the key — you can’t look at yield in a vacuum. The reason a cap rate is 6.75% (vs 5.00%) often comes down to how much lease term is left and who’s on the lease.

🔹 Lease Term vs. Yield: 3 Scenarios

✅ Scenario 1: Long-Term + Low Yield

  • Tenant: Chick-fil-A (corporate)

  • Lease Term: 17 years remaining

  • Cap Rate: 4.85%

  • Investor Profile: Risk-averse, 1031 exchange, legacy hold

Pros: Zero landlord responsibilities, unmatched credit, generational asset
Cons: Low yield, less cash-on-cash return (especially with financing)
Bottom Line: Buy and hold long-term. Perfect for income preservation.

⚖️ Scenario 2: Medium-Term + Balanced Yield

  • Tenant: Starbucks

  • Lease Term: 10 years remaining

  • Cap Rate: 5.50%

  • Investor Profile: Seeking strong credit with decent yield

Pros: Rent bumps every 5 years, attractive tenant, good exit window
Cons: Will require proactive exit planning within 5–7 years
Bottom Line: A sweet spot for many investors — solid yield without excessive risk.

🔼 Scenario 3: Short-Term + High Yield

  • Tenant: Taco Bell (5-unit franchisee)

  • Lease Term: 5 years remaining

  • Cap Rate: 6.75%

  • Investor Profile: Opportunistic buyer, experienced in re-tenanting or lease extensions

Pros: High income yield, room for value-add lease restructuring
Cons: Lease rollover risk, financing may be limited
Bottom Line: Not for passive buyers — but potentially a strong upside if bought right.

🔹 What’s the “Right” Lease Term?

That depends on your goals. Here’s a quick guide:

Investment Goal Suggested Lease Term Risk Profile
Preserve wealth 12–20 years Very Low
Passive income (1031) 10–15 years Low
Yield-focused 7–10 years Medium
Value-add play 5–7 years Medium–High
Opportunistic <5 years High

If you’re using financing, stay above 10 years for smoother underwriting and better terms. Deals with less than 5 years remaining typically require all-cash or partial leverage.

🔹 Tenants That Offer a Great Balance of Lease Term and Yield

Some U.S.-based tenants consistently deliver the best mix of strong credit, reasonable cap rates, and structured rent growth. Here are the top performers:

🟢 Starbucks

  • Typical Term: 10–15 years

  • Cap Rate: 5.00% – 5.50%

  • Escalations: 10% every 5 years

  • Highlights: Corporate-backed, premier QSR brand, very high resale demand

  • Ideal For: Yield-conscious buyers who still want a long-term, passive asset

🟢 Taco Bell (Franchisee or Corporate)

  • Typical Term: 7–15 years

  • Cap Rate: 5.75% – 6.75%

  • Escalations: 7–10% every 5 years

  • Highlights: Excellent operator performance, rent growth, scalability

  • Ideal For: Investors seeking yield with manageable risk

🟢 DaVita Dialysis

  • Typical Term: 10–12 years

  • Cap Rate: 6.00% – 6.50%

  • Escalations: 2% annual or CPI-based

  • Highlights: Healthcare tenant with recession resistance

  • Ideal For: Buyers wanting medical exposure and built-in rent growth

🟢 7-Eleven

  • Typical Term: 10–15 years

  • Cap Rate: 5.25% – 6.00%

  • Escalations: 10% every 5 years

  • Highlights: Investment-grade credit, essential retail

  • Ideal For: Investors wanting strong credit + inflation protection

🟡 Honorable Mentions (Lower Yield, Long Term)

  • Chick-fil-A (corporate) – Bulletproof tenant, but expect 4.50%–5.00% cap

  • Walgreens – Long term (15 years), flat rent, credit-rated but trades at low yield

  • CVS – Similar to Walgreens, often no rent bumps

🔴 High-Yield but Short-Term or Weak Credit Tenants

  • Dollar Tree / Family Dollar – Often flat rent, 5–7 years remaining

  • Local auto shops / tire centers – Private credit, difficult to finance

  • Single-unit QSR operators – High cap rates, high rollover risk

These aren’t bad assets — but they require active management, re-tenanting experience, or all-cash buyers.

FAQ – Lease Term vs. Yield in Net Lease Investing

Q1: Is it ever okay to buy a deal with less than 7 years remaining?

Yes — but you need a clear exit strategy or plan to renegotiate a lease extension. These deals are best for experienced investors or those with a team that can handle lease negotiations and re-tenanting.

Q2: How does lease term affect financing?

Most lenders want at least 10 years remaining on the lease at the time of purchase to issue full leverage. Less than that, and you may face:

  • Shorter amortizations

  • Lower LTV

  • Higher interest rates

Q3: Do longer lease terms always equal better investments?

Not always. Long leases without rent escalations (like Walgreens or CVS) can underperform over time. The best deals combine:

  • Long lease term

  • Structured rent increases

  • Creditworthy tenants

  • Prime locations

Conclusion: Buy Yield, Protect the Lease

The best NNN investors know that cash flow is king, but security is the throne it sits on.

Chasing yield without understanding lease term risk is a recipe for trouble — especially when you’re using leverage or relying on income for retirement.

The key is to find a blended balance — long enough lease term to protect your downside, with strong enough yield to meet your return targets. And that starts with choosing the right tenants, the right markets, and the right deal structure.

Need help sourcing NNN deals with optimal lease length, cap rate, and upside?

Let’s transact.