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Real Estate Investing 101: Common Lease Types

  • Writer: Porter Anderson
    Porter Anderson
  • Dec 11
  • 4 min read

If you’re thinking about investing in commercial real estate, one of the first things you need to understand is how commercial leases actually work. Unlike residential leases, which are usually simple and straightforward, commercial leases come in a few different structures. And those structures can dramatically change your cash flow, your responsibilities, and your long-term returns.

In this beginner-friendly guide, we’ll break down the three most common commercial lease types: Gross Leases, Modified Gross Leases, Triple-Net (NNN) Leases, and Ground Leases. By the end, you’ll know exactly what each one means, why they matter, and which might be the right fit for your investing goals.


Why Lease Type Matters

Commercial lease structure isn’t just a detail; it’s one of the biggest factors in determining whether a deal is a winner or a headache. The type of lease influences:

  • How predictable your income is

  • Who pays for property taxes, insurance, and maintenance

  • How much time you will spend managing expenses

  • The overall risk of the investment

If you’re trying to figure out which commercial properties are beginner-friendly or which ones offer the most passive income, start by looking at the lease type.


Drone image of a Starbucks

1. Gross Lease (Full-Service Lease)

A Gross Lease, sometimes called a Full-Service Lease, is the most straightforward option for tenants. They pay a single monthly rent amount, and almost everything else is covered by you, the landlord.

What the tenant pays:

  • One set rent amount

What you pay as the landlord:

  • Property taxes

  • Insurance

  • Common area maintenance (CAM)

  • Repairs

  • Sometimes utilities

Where you’ll see Gross Leases:

  • Office buildings

  • Multi-tenant properties

  • Older commercial buildings

Why investors like Gross Leases:

Because you’re covering most expenses, Gross Leases require more hands-on management and budgeting. However, they also let you charge higher rent and offer more flexibility in value-add opportunities.


2. Modified Gross Lease (MG or Modified-Net)

A Modified Gross Lease is exactly what it sounds like: a middle-ground between a Gross Lease and a Triple-Net Lease. Both you and the tenant share expenses.

What the tenant usually pays:

  • Base rent

  • Utilities

  • Sometimes part of CAM fees

What you typically handle:

  • Remaining operating expenses

  • Structural repairs

  • Major building maintenance

Where you’ll see Modified Gross Leases:

  • Office buildings

  • Flex spaces

  • Commercial properties with multiple tenants

Why investors like Modified Gross Leases:

Modified Gross Leases are flexible. You can negotiate who pays for what, making it easier to tailor agreements to different tenants. This can help attract tenants while still protecting cash flow.


3. Triple-Net Lease (NNN Lease)

If you’ve heard investors talk about “mailbox money,” they were probably referring to Triple-Net (NNN) Leases. These leases shift most of the responsibility to the tenant and offer some of the most passive income in commercial real estate.

What the tenant pays (the ‘three nets’):

  • Net taxes

  • Net insurance

  • Net maintenance (CAM fees)

  • Base rent

What you pay as the landlord:

  • Usually just major structural repairs (roof, foundation, exterior walls)

Where NNN leases are most common:

  • Retail centers

  • Single-tenant buildings

  • National credit tenants (Starbucks, Walgreens, etc.)

Why investors love NNN leases:

They offer stable, predictable, low-effort income. If you want to build a portfolio that takes little time to manage, NNN leases are tough to beat. Just make sure to thoroughly vet the tenant and the location, two key factors that drive long-term stability.


4. Ground Lease (Land Lease)

Ground Leases are one of the most unique and often misunderstood structures in commercial real estate. In a Ground Lease, you lease the land only, and the tenant builds and owns the building on top of it during the lease term.

How It Works:

The tenant leases the land from you (often for a longer term), and they finance, build, and operate the improvements themselves. At the end of the lease, ownership of the building usually reverts back to you.

Tenant Pays:

  • Ground rent

  • All construction costs

  • All maintenance

  • Taxes

  • Insurance

  • CAM

Essentially, the tenant treats the property as if they own it except they don’t own the land.

Landlord Pays:

  • Usually nothing

Where It’s Common:

  • Big-box retailers

  • Banks

  • Fast-food chains

  • Prime retail corners

Why Ground Leases Are Attractive to Investors:

  • Ultra passive income - the tenant handles everything

  • Very low risk - land rarely depreciates

  • Strong tenants - often corporate or credit-rated

  • Long-term stability - leases can run several decades

  • Building reversion - you may receive the entire structure at lease expiration

Why Investors Like Ground Leases:

Ground leases can offer some of the safest, most predictable returns in commercial real estate. However, they require careful underwriting and a clear understanding of long-term lease terms.


Drone image of a ground lease

Final Thoughts

Commercial lease structures might seem complicated at first, but once you understand the basics of Gross, Modified Gross, Triple-Net, and Ground Leases, they become much easier to analyze and understand. Knowing the differences helps you:

  • Compare potential investments

  • Understand cash flow

  • Evaluate risk

  • Negotiate stronger deals

With this foundation in place, you’re already ahead of most new commercial real estate investors.

Porter Anderson is our Finance Manager at Legend & Forza. He works alongside the brokers in our office to provide financial analysis to their clients, as well as managing the financing aspects of the development team.

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