Real estate can be a powerful complement to a traditional portfolio, especially when structured for predictable cash flow and lower maintenance. For many investors, that means exploring triple net lease (NNN) properties — where the tenant, not the owner, is responsible for taxes, insurance, and maintenance.
Recently, I was asked about the trade-offs between buying three small Starbucks locations versus one Walgreens for a total investment around $5 million. Both can be appealing options, but the decision really comes down to diversification, lease structure, and timing.
Understanding Triple Net Leases
Unlike residential rentals, where you may be changing light bulbs and fixing plumbing, a triple net lease means the tenant covers nearly all property expenses. You collect rent that’s net of those costs, and in exchange, you accept lower expected returns.
The trade-off is simple: less hassle, less risk, lower return. But in exchange, you gain stability — a tenant like Walgreens or Starbucks doesn’t typically call asking for a rent extension. Leases are long-term, often five to twenty-five years, and provide consistent income with limited involvement.
The Value of Lease Term and Tenant Quality
In this kind of investment, the lease is what drives value. A Walgreens with twenty-five years left on its lease is far more valuable than one with only five. Tenant credit quality matters too. Both Starbucks and Walgreens are well-known for their corporate backing and stable track records, which is why they’re considered “institutional-grade” triple net tenants.
Diversification: The Bigger Decision
The more pressing issue in this example isn’t Starbucks versus Walgreens — it’s diversification. Putting your full $5 million into a single Walgreens creates concentration risk. Three Starbucks properties, on the other hand, at least spread exposure across multiple leases.
That said, owning three of the same brand isn’t true diversification either. A better structure might include a mix — for example, a Starbucks, a Dollar General, and a fast-casual or convenience chain — ideally in different regions. This helps protect against geographic and industry-specific risks while still maintaining the reliability that NNN properties offer.
Leverage and Vintage Diversification
If your $5 million represents total available capital, one approach is to use modest leverage to expand the portfolio to $7–8 million and pick up four or five properties instead of three. But leverage comes with its own risks, and the learning curve for first-time investors in this space can be steep.
Another type of diversification often overlooked is vintage diversification — spreading purchases over time. Buying all properties in the same year locks you into current market conditions, interest rates, and valuations. Phasing acquisitions over several years allows you to adapt as markets change and smooth out timing risk.
A Long-Term Mindset
Triple net lease properties can be an excellent long-term income strategy, but they’re not designed for quick trades. These are illiquid assets, and while easier to sell than most commercial properties, they still require patience and planning.
If you take your time, build strategically across tenants and locations, and understand how lease terms affect valuation, you can create a stable real estate component that complements your broader investment portfolio.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on triple net lease investing and portfolio diversification, listen to the full podcast episode here.