10 Year Treasury vs. Triple Net Leased Property – Which is The Better Investment?


Key Takeaways

Key Takeaways

  • A 10-year Treasury is a debt obligation of the United States government.  It is repaid with fixed interest payments every 6 months and face value at maturity.
  • The interest rate paid on a 10-year treasury is often referred to as the “risk free” rate because it is backed by the US government and repayment is near certain.
  • A triple-net leased property is a piece of real estate whose tenant lease structure requires them to make a base monthly rental payment plus taxes, insurance, and maintenance.
  • When compared as potential investment options, a 10-year Treasury typically offers a lower interest rate, but less risk and more stability.  They tend to be a good fit for investors seeking stable income and preservation of capital.
  • A triple-net leased property has slightly more risk, but also offers the potential for a higher return.  They tend to be a good fit for investors seeking income plus some capital growth.

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A decision to make an investment is often one that is made between two alternatives.  For investors seeking stable income and little to no risk of loss, two such alternatives are the 10-Year Treasury and a Triple-Net Leased Property.  In this article, the risks and benefits of each are discussed.

What is a 10-Year Treasury?

A 10-Year Treasury Note is a debt obligation issued by the United States Government.  It has a term of 10 years and pays a fixed rate of interest every six months and repays the face value upon maturity.  

The interest rate paid is often referred to as the “risk free rate” because an investment in US government debt is considered to be as close to risk free as an investment can get.  For context, the 10-year Treasury interest rate has ranged from ~1.75% to ~3.75% from 2018 – 2021.

Risks and Benefits of a 10-Year Treasury Investment

A 10-year Treasury note is an investment grade security whose primary benefit is its stability and predictability.  It is an obligation of the United States government and investors can have a high degree of confidence that they will be repaid – with interest – on time.  In addition, a 10-year treasury is highly liquid and can be bought and sold with relatively little difficulty and cost.

However, the price investors must for the stability of a 10-year treasury comes in the form of a relatively low return.  Depending on macroeconomic conditions, the return can hardly outpace inflation, which makes for an even lower net return.

What is a Triple Net Leased Property? 

A triple-net leased property (NNN property) is a commercial real estate asset with a lease structure that requires the tenant to pay a base rental amount plus the three major operating expenses of property taxes, insurance, and maintenance.

Often, triple-net leased properties have a single tenant with an excellent credit rating.  These are large companies whose profitability and reputation provide little doubt that they will default on their lease payment.  Common triple net lease tenants include companies like Walgreens, Starbucks, and Dollar General.

Benefits and Risks of NNN Investment Properties  

Relative to a 10-year treasury investment, a triple net lease (NNN lease) has a number of benefits that should be considered when investing in a property.

  • Income:  The income produced by tenant rent payments can provide a similar stream of cash flow to a 10-year treasury’s interest payments, albeit with somewhat more credit risk.  In addition, many leases have built in “escalations” that mandate regular rent increases over time.
  • Time:  Because a triple-net tenant pays for maintenance, they require relatively little hands on attention when compared with other commercial real estate investments.
  • Credit Tenants:  While not as strong as the US Government, NNN tenants tend to be large, reputable companies with investment grade credit ratings from third parties like Fitch and Moodys.
  • Tax Treatment:  The depreciation created by a commercial property offsets income, reducing an investor’s overall tax liability.
  • Debt Availability:  Given the strength of triple net tenants, lenders are willing to finance the purchase of the associated property with terms that are more favorable than other investment opportunities. 
  • Liquidity:  Given their strong tenants and long term leases, net lease properties are very popular with investors.  As a result, they tend to be more liquid than other real estate options. 

While the benefits are numerous, they aren’t without risk.  There are three risks in particular that are related to net lease investments:

  • VacancyTriple net properties often have just one tenant, which means that they are 100% occupied or 0% occupied.  If a tenant decides not to renew their lease, there are no other tenants to offset the loss of income.
  • Cost:  There are two important costs to consider, the purchase price and renovations.  Triple net lease properties tend to have high purchase prices, which can lower the potential return.  They can also be expensive to renovate to if an existing tenant decides not to renew their lease.  
  • Credit Risk:  Although small, there is always a possibility that a tenant can’t or won’t pay their rent.

Given the fact that they both produce a steady stream of income with a relatively small risk, it is common to compare potential returns for a triple net property and a 10-year treasury.

Which is the Better Investment?

The short answer is, it depends.  Neither investment is objectively “better”, instead it depends on the individual needs and preferences of the investor making the decision.

For investors whose main priority is income stability and preservation of capital, the 10-year treasury is likely going to be the better option.  But, they sacrifice some potential return for this safety.

For investors who have a slightly higher risk tolerance and are seeking income, growth, and beneficial tax treatment, a triple-net leased property may be the preferred option.

Interested In Learning More?

First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. We leverage our decades of expertise and our available liquidity to find world-class, multi-tenanted assets below intrinsic value. In doing so, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.

If you are an Accredited Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or info@fnrpusa.com for more information.

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