The Triple Net Illusion: Why NNN Doesn’t Eliminate Risk in Lake Havasu

Triple net lease. For many investors, those three words feel like a guarantee. The tenant pays taxes, insurance, and CAM. What could go wrong?

In Lake Havasu, a lot could go wrong. Triple net doesn’t erase risk. It shifts it, and sometimes slams it back on the owner at the worst possible moment.

A shallow tenant pool can turn one departure into months of vacancy. Small lease mispricing errors can quickly become costly.

And when vacancy hits, everything changes.

Why NNN Feels Safe

On paper, NNN looks perfect. It offers stable income, predictable expenses, and minimal landlord responsibility. That’s an attractive story.

But what happens when the deal goes bad, and you have a vacancy? Now you’re paying taxes, insurance, and all the CAMs.

That’s the part most investors skip. Triple net only works when a tenant is in place and paying. When the space goes dark, the full cost stack falls on you.

The True Cost of Vacancy

Let’s keep it simple. You buy a building at a cap rate based on high triple net income. The numbers pencil, and the broker shows clean financials. The tenant covers operating expenses. Then the tenant leaves.

Suddenly, you’re paying:

• Property taxes
• Insurance
• Maintenance
• Utilities (often)
• Debt service

That “passive” income turns into a negative carry almost overnight. The cap rate you paid assumed full occupancy. The valuation assumed uninterrupted rent. Once the rent stops, you’re no longer earning yield. You’re covering burn.

In a smaller market like Lake Havasu, burn can last far longer than many investors expect. Vacancy isn’t theoretical. It directly reduces your true net income and can derail your hold strategy.

Re-Leasing Risks in Small Markets

Triple net leases promise stability. But in a small market, that promise can create headaches. Tenants must take on responsibilities that many operators prefer to avoid:

• Roof replacements
• HVAC systems
• Parking lot maintenance
• Property tax increases

In a major metro, multiple tenants might accept that structure. In Lake Havasu, the pool narrows quickly. Fewer willing tenants mean longer leasing times, which increases your exposure. Lease structure doesn’t overcome market depth.

When Triple Net Works

Triple net isn’t bad. It’s conditional. It works best when you have:

• A long-term lease
• A strong credit tenant or proven operator
• A durable business model
• A building designed specifically for that use
• Clear capital responsibility language

Think medical offices, national brands, or well-capitalized local operators signing longer terms.

Where does it break down?

• Short-term leases
• Smaller operators with limited liquidity
• Buildings with high deferred maintenance
• Tenants who cannot realistically absorb large capital expenses

Triple net is powerful if it’s the right property. But you must be careful if the lease is NNN and the property or tenant doesn’t fit the model. Evaluate the tenant’s balance sheet with the same intensity you evaluate the rent roll.

A Real-World NNN Lesson

An investor called about a triple-net retail building. One tenant. Five years left on the lease. The cap rate looked strong compared to other listings. On paper, it seemed attractive.

We backed into value instead of chasing yield. Property taxes were climbing. The roof had 6 to 8 years left. HVAC units were original. The tenant was local and profitable, but margins were thin.

We asked one simple question that changed everything. If the roof fails in year four, can this tenant cover the cost without defaulting?

The lease said the tenant was responsible. The business reality suggested otherwise. If the tenant left, we’d face a specialized buildout in a limited market. Estimated downtime: 9 to 12 months under similar NNN terms.

Once we modeled a realistic vacancy event, the cap rate premium vanished. That deal did not pencil under stress.

Backing Into True Value

A careful investor approaches a triple net deal by running four key tests:

• Lease Term: Short-term NNN increases rollover risk. If you’re inside a three-year window, you’re effectively buying a re-lease project.
• Tenant Durability: Look beyond rent history. Review margins, industry trends, and capital reserves. Can they handle major repairs without folding?
• Replacement Risk: If the tenant leaves, how long does it take to re-lease on similar NNN terms in this market? Not Phoenix. Not Las Vegas. Here.
• Capital Obligations: Roof, HVAC, parking lot, code upgrades. If these arise during the lease, is the tenant both obligated and able to cover them?

If you can’t answer these questions clearly, you’re not buying safety. You’re buying conditional stability.

Gross vs. NNN: What Protects

Lease structure alone doesn’t determine risk. A stable gross lease with a durable tenant can create less volatility than a fragile one-year NNN lease. The label on the lease matters far less than tenant quality and market depth.

Many investors gravitate toward NNN because they want:

• No management headaches
• No surprise expenses
• Pure passive income

That’s the marketing narrative, but real estate always carries operational risk. Triple net doesn’t eliminate it. It concentrates that risk around a single tenant and a single rollover event.

In a small market, that rollover can define the entire outcome. Durability and replacement probability matter more than lease labels.

Triple Net Questions Answered

Does triple net guarantee predictable income?

No. It provides predictable expense allocation while a tenant is in place. Once the tenant vacates, the owner absorbs operating costs. Predictability depends on tenant durability and remaining lease term.

Why is vacancy risk higher in smaller markets?

Tenant pools are thinner. Fewer operators are willing or able to assume full NNN responsibilities. That slows replacement timelines and extends carry periods.

Is a national credit tenant always safe?

Credit strength reduces risk, but it does not eliminate it. Lease term, location, and building condition still matter. A strong tenant in a weak location can create re-leasing challenges at rollover.

How should I evaluate a NNN cap rate?

Start with true net income. Then model at least one realistic vacancy event during the hold period. If projected returns collapse under conservative downtime assumptions, the deal does not pencil.

What lease length reduces rollover risk?

Longer terms with extension options provide greater stability. Five to ten years remaining is generally stronger than one to three. Duration helps only if the tenant’s business is durable.

What capital items create the most NNN risk?

Roof and HVAC are typically at the top of the list. Parking lots and code upgrades follow. If these arise during the lease and the tenant cannot perform, the burden shifts back to the owner.

Can triple net work well in Lake Havasu?

It can, when the building fits the use, the tenant is financially solid, and the lease term matches the risk. Inventory is tight, which allows well-positioned assets to perform. The key is pricing the risk honestly from the start.

Don’t Gamble on Triple Net

Triple net looks safe until it isn’t. Vacancy, rollover, and unexpected capital costs can turn “passive income” into a cash drain overnight.

Shuffler Commercial Realty helps investors cut through the marketing hype. We analyze the lease, stress-test the tenant and capital risk, and show you exactly what your numbers look like.

Stop guessing. Protect your downside. Start your conversation with us today.