Courtesy of Hughes Commercial
In the world of net lease investing, there’s a structural decision that often gets glossed over—but can massively impact your returns, risk profile, and long-term upside:
Are you buying a fee simple interest or a ground lease position?
The difference matters.
A lot.
Let’s break down what each means—and how to decide what fits your strategy best.
️ What Is Fee Simple Ownership?
Fee simple is the most complete form of real estate ownership. You own the land, the building, and all associated rights.
✅ Full control
✅ Long-term appreciation
✅ More leverage options
Most single-tenant NNN assets are sold fee simple. Investors like the simplicity, security, and long-term wealth-building potential.
What Is a Ground Lease?
In a ground lease, the investor owns the land only. The tenant—or a separate developer—typically builds and owns the structure but pays you rent for use of the land.
✅ Long-term income stream
✅ Lower maintenance risk
✅ Superior legal protection in default (often senior to leasehold debt)
Many ground leases are “absolute net”, with zero landlord responsibilities—making them appealing for passive income seekers.
But they’re not without caveats.
⚖️ Pros and Cons at a Glance
Structure
Pros
Cons
Fee Simple
Full ownership, appreciation, more control
More responsibility (repairs, capital costs)
Ground Lease
Passive income, low maintenance, downside protection
Limited upside, long-term control issues
Key Risks to Watch For
With Fee Simple:
You’re on the hook for property-level issues (even in triple net deals, if they aren’t “absolute”)
You bear the full cost of capital improvements if triggered by lease terms
With Ground Leases:
Reversion risk: At lease maturity, buildings often revert to the landowner—but can become functionally obsolete
Lender limitations: Many lenders won’t finance ground lease positions as favorably
Exit liquidity: Fewer buyers understand or want ground leases, especially with short remaining terms
Which Should You Choose?
It comes down to your goals.
Want control, appreciation, and flexibility? → Fee Simple
Want mail-box money with minimal headache? → Ground Lease
Chasing yield but okay with complexity and liquidity tradeoffs? → Consider both—with eyes wide open
Bottom Line
Whether you’re buying a NNN property or considering a long-term income play, understanding the difference between fee simple and ground lease is critical to your investment strategy.
Structure isn’t just legal—it’s financial DNA.
