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Commercial Net Lease Investing 101: Passive Income With Long-Term Tenants

By January 6, 2026Real Estate Pros Show

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Show Summary

In this conversation, Wes Koontz, a commercial real estate investor, shares insights into the net lease investment space, explaining the different types of net leases, the importance of tenant relationships, and strategies for securing tenants. He discusses the risks and rewards associated with investing in national chains versus local businesses, as well as the significance of understanding market trends and lease negotiations. The conversation provides a comprehensive overview of the net lease market, making it accessible for both seasoned investors and newcomers.

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    Investor Fuel Show Transcript:

    Wes Koontz (00:00)
    Yeah, so the simplest way to look at it is when you drive around on the street and you see a retail building like a drugstore, a bank, a McDonald’s, a grocery store, Walmart, those are all net lease properties. Typically one building, one tenant, a long-term lease, and people buy these properties like a bond alternative piece of real estate. So ⁓ it’s really interesting. You touch it and feel it every day, but a lot of people don’t know it exists.

    Dylan Silver (02:00)
    Hey folks, welcome back to the show. Today’s guest, Wes Koontz is a commercial real estate investor with Fortel Capital Partners. He’s based out of Naples, Florida and focuses on retail net lease investing. He also does some advisory in the net lease space. Wes, welcome to the show.

    Wes Koontz (02:21)
    Dylan, thanks for having me. Super excited to be here and looking forward to sharing a little about my industry, the niche and my background.

    Dylan Silver (02:31)
    I wanna dive straight into the net lease space because as I was mentioning before hopping onto the show here, I’ve now had more of these conversations with folks in the commercial space and I know a thing or two about triple net lease investing. I’ve heard that quite a bit. But to our audience who may not be familiar with what a net lease entails and the options, give us the bird’s eye view of what net lease is.

    Wes Koontz (02:59)
    Yeah, so the simplest way to look at it is when you drive around on the street and you see a retail building like a drugstore, a bank, a McDonald’s, a grocery store, Walmart, those are all net lease properties. Typically one building, one tenant, a long-term lease, and people buy these properties like a bond alternative piece of real estate. So ⁓ it’s really interesting. You touch it and feel it every day, but a lot of people don’t know it exists.

    Dylan Silver (03:29)
    Now, is each individual net lease going to be customized to that tenant or is it generally the same across, you know, tenants and across industry?

    Wes Koontz (03:46)
    So, Dylan, great question. So in net lease, there’s a wide variety of types of leases ⁓ amongst different tenants. Okay. So in the real basics of it, there are three really food groups in net lease types of investments. And those are like an absolute triple net lease, which is no landlord responsibilities. The tenant takes care of everything. They cut the grass, they pay the insurance, they pay the taxes. You just get a wire in your bank account every month.

    ⁓ Very similar to that, ⁓ triple net lease, typically the tenant is leasing the building from the property owner. Another very similar form is a ground lease, where you own the ground and typically the tenant has built the building. Still, you do nothing because you just own the ground. They built the building, they put in the parking lot, they maintain everything, you get a check in your mailbox. The third type is called a double net lease. And what triple net is,

    Dylan Silver (04:32)
    Hmm.

    Wes Koontz (04:46)
    that there are three ends. it’s property taxes, insurance, and maintenance. So in a double net lease, the tenant pays typically the property taxes and the insurance, but there’s some component of maintenance that you might have to do. And the most common is, let’s say you have to take care of a roof and the structure on a building. And it’s really interesting, the universe of net lease investments. If this was a pie, 100 % pie, about 80 % of that pie are people that want to buy

    absolute triple netted ground leases. They don’t want to deal with

    Dylan Silver (06:08)
    interesting. I’ve heard about triple net, the ground lease is interesting to me, because it involves a huge amount of investment on the side of the tenants, right? So you’re talking about leasing the land, but then building a structure, would the tenant then have any equitable stake when the property is sold in that building or effectively, they are leasing the property and when it sells, they’re out.

    Wes Koontz (06:39)
    Yeah, so it’s a really great question, Dylan. And it really depends on the actual structure. You your question before about are all these contracts the same? They’re all very different, and the devil is in the details. So, you know, a lot of people buy these properties and they just want to armchair investment and get a safe return. But they don’t realize, to your great question, ⁓ some leases might say, okay, very rare, but some leases might say, okay, the tenant invested

    $5 million building this building, and the lease is only 10 years long. And then all of a sudden you get towards the end of the lease, and they might have a clause that says if they leave or you won’t give them a renewal, you gotta pay them back a portion of the undepreciated amount of that building. Very rare, most of the time you get to keep the building, you get to keep the improvements, and when they leave, you now own that building, and when you lease it to somebody else, you can now depreciate that asset.

    Because as I’m sure you know, you can’t depreciate land. So some people don’t want to buy a ground lease because they want that depreciation shield of their income.

    Dylan Silver (07:45)
    Now, when we’re talking about how these are structured, being very much customizable, do you advertise if you’re the investor with the land or with the ⁓ property retail space, do you advertise it as a certain kind, double net, triple net lease, or do you really work through those details once you find the tenant?

    Wes Koontz (08:12)
    No, so another good question, but basically in the net lease world, for the most part, people have already created this contract with the tenant, usually done by a developer who has a sophisticated business and a relationship with a tenant. And in the universe of buying and selling these things, ⁓ they’re always put together in advance. A developer normally, let’s say ties up a piece of land and he goes and gets McDonald’s.

    McDonald’s agrees to sign a 20 year lease on this piece of land. and then basically the developer takes that he’s already created the lease, he might prepare the soil, McDonald’s builds their building. And even before they’re done building building, brokers will typically take that market that investment out to market and they’ll say 20 year ground lease McDonald’s, and you’re going to get a 5 % return for the first five years and five and a half the next five years. So it’s all pretty pre prescribed.

    I think to the point of if you were an owner of a piece of land and you were interested in this type of situation, first you gotta know that you have the right type of property for an at-lease investment. You gotta have exposure to the road. A signalized corner is great. Obviously a retail trade area is important. But you’d be marketing that site to those tenants in the hopes that you could find a tenant to either lease your land.

    or that you would say, Mr. Tenant, Chick-fil-A, Chick-fil-A is not a good example because they build their own building, but Popeye’s chicken, I’ll build the building for you and let’s sign a long-term lease and I’ll do X, Y, and Z and so forth. And so then at that point, you’d either keep the property and get the cashflow for 20 years or 40 years or however long they stay, or you’d go out to the market and sell it with its specific prescribed features.

    Dylan Silver (10:04)
    Now I’m imagining when you’re working with like corporate partners, you mentioned like McDonald’s, Chick-fil-A, Popeyes, right? They have a network of their own where they’re sourcing their properties from and that in order to find that type of tenants, you have to do the legwork in order to do so maybe before you find the property. Is that true or?

    Should people be looking at finding the deal first and then worry about the tenants after?

    Wes Koontz (11:15)
    So there’s sort of two different scenarios. So sticking on the McDonald’s example, obviously McDonald’s has properties all over the world, right? Very sophisticated. And they were earlier than most other tenants. So they usually have a really good spot in nearly every trade area in the United States, right? But what happens is their business model changes and maybe for a long run now, they went from one drive through to two drive throughs. Now all of a sudden some of their locations that were Greenfield are now

    infill, very infill, and they don’t have enough land to do the double drive-through. So all of a sudden they need to find a better spot. Okay. So here are the two ways that a deal could happen. One is you’re just a kind of savvy investor and you find a great corner. It’s almost always going to be a signalized corner for a national retailer, like a fast food. It’s got to have great access. It’s got to have a lot of traffic counts and they got to want to be in that spot. Okay.

    So a savvy investor, maybe another property went vacant, you bought it on spec and you have the best property in that market that happens to be an acre and a quarter. And now McDonald’s wants to relocate and they come to you. Okay, so that’s one scenario. The second one is you’ve developed a long standing relationship with McDonald’s and you understand their requirements and they come to you and say, Hey, Wes,

    We have this store over here in Pullingbrook, Illinois, and we’re just landlocked here. Can you guys get creative and maybe you’re going to take down a hotel or maybe you’re going to buy a veterinary clinic or you know you’ve got McDonald’s, they’ve told you what they want and they’re willing to work with you. And so you’ve kind of taken the tenant risk out of it and no longer is it speculation, but now it’s you got to do the heavy lifting. McDonald’s doesn’t want to do it because they want to sell hamburgers.

    So they need partners in a lot of places, especially bigger markets, to help them.

    Dylan Silver (13:17)
    Now, when we talk about larger clients, the McDonald’s, the Chipotle’s of the world, Different strategies. So I don’t know if Chipotle’s building their buildings, but it certainly seems like in many cases McDonald’s is. But I’ve also heard that if you’re going after like a Starbucks, a Chipotle, right? That the standard for the structure is going to be higher. that the investor

    will have to get the property up to a higher degree than if they were to go sign a lease with let’s say you know someone who has ⁓ maybe a more localized business that is not ⁓ a national chain. Does that come into account as well when you’re looking for tenants that hey I’ve got maybe a national chain here but I’ve got to invest more into the building itself and someone else might be willing to take it as it is.

    Wes Koontz (14:54)
    Absolutely, absolutely. And you know, if you own a property, you want to look at sort of the waterfront because ultimately it comes down to one, are you going to hold the property or are you maybe going to sell the property once you get it occupied? And depending on if you’re going to if you’re just going to hold it, right, you’re just going to look at the pure financials of your investment and the return you’re going to get and maybe how likely it is that that tenant is going to leave.

    Right? So you’re going to invest less money for like a local regional operator and you’re going to maybe get a higher return. You should get a higher return because it’s a little more risky, but there’s a chance that they might leave or close shop, close up shop, right? A little more likely than McDonald’s going bankrupt is relatively unfathomable. So yes, definitely a huge part of the equation. And, but in terms of the actual investment in the property, typically it’s all going to go accordingly.

    Dylan Silver (15:42)
    Thank

    Wes Koontz (15:50)
    you’re not gonna do the deal unless you’ve figured out that you can make money doing it. And Starbucks is a great example. Starbucks is an amazing company, as you know, great coffee, very, very strong credit, but their buildings are so nice and you typically have to build the building for them, right? So you’re investing a huge amount of money. You’re making this Taj Mahal of a building for Starbucks and they’re usually signing a 10 year lease that’s double net.

    So you sometimes actually have to administer the can and you have to there’s work you have to do and Accordingly, they’re gonna pay a really high rent, which is great but your return might be just okay and the risk that you have is if Starbucks leaves You know you put in all this money in this building and the rents really hot if we replace that nobody can afford to pay it and You know, you can really lose your shirt if you’re not careful

    Dylan Silver (16:39)
    Yeah.

    When we talk about a tenant like a Starbucks, especially if you’re building a standalone structure, right, then who is going to come into the space? Is it any less risky if let’s say, you know, it’s first floor, ⁓ major Metro and it could be Starbucks, but it could also be someone else in there. And Starbucks might need their space maybe to a higher standard, but if it’s prime real estate first floor and there’s other, you know, big box national ⁓

    food service or retailers over there that someone else can come into that space and it might be maybe easier than a standalone building that was constructed specifically for Starbucks.

    Wes Koontz (17:30)
    You know, what I would say is that the reason that I love net lease and single tenant investment, even though it’s a, it’s a freestanding building are twofold, right? So you take that Starbucks example and maybe it’s not Starbucks, but let’s just say it’s a vacant fast food restaurant that you see and it’s on, it’s on a great corner piece of property. Okay. And it’s 3,000, 3,500 square feet. And it’s already got a drive through built into it. Those properties are like,

    gold because you could put Starbucks, could put Chick-fil-A, could put Chipotle, you could put Church’s Chicken. mean, there literally probably 50 different food users, a personal category favorite of mine, it’s food because everybody wants a drive-through. There’s probably 50 guys that would take it. So if you underwrite the real estate properly, you’ve got a really great asset here. Okay, so that’s one.

    But secondarily, beyond the sort of looking at the value of the real estate and the rental stream that may have been in place or that you can put in, in net lease, the difference between maybe having a space in the building is you have this underlying piece of land that is your ultimate security, okay? So if you bought a Chick-fil-A, you’re never gonna think they’re gonna run out of business, but eventually they might leave the location.

    Dylan Silver (18:54)
    Yeah.

    Wes Koontz (18:54)
    Right? You

    still going to come back to having to either retent the building or the land. And with the land, you can underwrite someone leasing that land without a building. So it doesn’t matter that it was 3,500 square feet of length of building. You have somebody else that comes along and wants to put a drug store or fuel station. And all of a sudden, if you, if you figured out your rent relative to this parcel of land, you can put almost anything there.

    Dylan Silver (19:21)
    Now, when you’re looking at these deals, how much of a factor is appreciation and predicted values that sell in five years? Because it’s hard to say, right? mean, from what I understand that this is very much dependent on rents and business performance, but the values of commercial real estate may be sometimes less predictable than residential because comps aren’t right down the road.

    Wes Koontz (19:51)
    So I was listening to a podcast a couple of weeks ago and the gentleman on it, Alexi, he’s sort of at a very high level institutional investment with DSTs, excuse me, funds that are investing large sums of capital in these types of investments. And so when you talk about NetLease, a really interesting statistic that he talked about was that if you looked at…

    going back 40 years, these types of investments compared to the S &P or the stock market. think the average annualized return on the stock market was like 9.7 or 9.9 or whatever number he quoted. And then net lease was like 9.6. And the interesting part was he said over 50 % of that return on net lease, these contractual long-term leases to credit tenants was from current income.

    Right? So, while commercial can have really big wide swings, these assets are typically tied up in 10, 15, 20 year contracts with scheduled rental increases. And so, and they’re really in the same class as a bond, bond liability for these companies. So when you get Panera or you get McDonald’s or you get Chick-fil-A and they’re on this site, they’re kind of locked in for 20 years.

    and they’re paying increases, scheduled increases, and you’re collecting those over time, and that money is just compounding. So you have that, you know, 50%, and then, you know, the rest of it is appreciation of the land, or, you know, what are you gonna, what’s that gonna be worth when the tenant leaves? And that’s where the real homework comes in, is to understand, okay, what’s my basis today? And where do I, where could I see this being in 10 years, 15 years? Like, it…

    I like to look at it and say, if it was vacant right now, do I like this rent? And do I like the value of this building? Because if you like it now today, like I said before about the land value, you’ve got all the security you need. And likely in 15 years, that property is gonna be worth a lot more in its now value in 15 years.

    Dylan Silver (22:05)
    Yeah, there’s there’s a lot that goes into it. But what’s it worth making right now? Right? What what’s you know, that’s a good barometer for it. And then to the news, it was news to me that the scheduled rent increases is that is that always the case when you have these long term contracts? Or are people coming in and trying to negotiate or renegotiate at some point in time?

    Wes Koontz (22:30)
    So typically the most common lease structure and net lease is 10 % increases every five years. So 100,000 in rent today, five years from now, then it’s 110 for the next five years, then it’s 121 for the next five, that’s the most common. Some tenants have, with inflation and everything, sometimes you can get 1%, 2 % annual increases, obviously better, harder to find.

    And then you have some legacy deals like Walgreens did some deals a long time ago that had no increases ever and they basically locked up properties for like 75 years with their options and they basically could, you know, could stay there forever. So obviously those are not very well favored in the marketplace. You know, people want increases in the rent. So yeah, it’s very common and

    The only negotiating points, and this is where it’s really important to understand the value today and the rent relative to the market is that when the options come. So, you know, let’s say you have a 10 year lease with Starbucks. You need to understand that ⁓ in that 10 years when their option comes up, is that option, are they going to take it or are they going to say, hey, ⁓ that option only benefits me. Now I’m going to

    negotiate for like 20 % lower rent. So you have some risk on renewals and that’s where you really have to understand the market and the market rents that’s where you need a lot of data to understand that part.

    Dylan Silver (24:08)
    very interesting. ⁓ We are ⁓ coming up on time here Wes and I’m sure I’ve got ⁓ questions and I’m sure our audience maybe would like to reach out to you but also Fortel Capital partners you know folks are interested in looking at this space how can they reach out to you or your team?

    Wes Koontz (24:28)
    Yeah, absolutely. You can a couple options, but our website is www.fcptriplenet.com. So fcpnnn.com. Recently, I’ve been doing a little more ⁓ time on Instagram. So you can reach me there at Wes.Koontz on Instagram. And those are the best places really to get me.

    Dylan Silver (24:52)
    Wes, thank you so much for coming on the show today.

    Wes Koontz (24:55)
    Thanks so much, Dylan. Love to share about the space that I love.

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