Short answer. Under roughly $250,000, a net lease REIT such as Realty Income is often the more practical tool: diversified, liquid, and cheap to own. Above roughly $1 million, especially for an investor inside a 1031 exchange or facing a large tax bill, owning the same kind of building directly can produce more after-tax income, as it does in our worked example. On $2 million, our worked example below shows Realty Income shares netting about $69,300 a year after federal tax, while one comparable NNN property nets about $94,700 with standard depreciation, and with a cost segregation study the example’s year-one deductions exceed the full $132,300 of rent, so none of it is subject to current federal tax, provided the property qualifies for bonus depreciation; the excess loss is generally suspended under the passive activity rules. The middle ground, $250,000 to $1 million, depends on the investor.
Related: Gas Station Bonus Depreciation
Realty Income, founded in 1969, is a long-established net lease REIT. As of June 30, 2026 it owned or held interests in 15,588 properties leased to tenants such as Dollar General, 7-Eleven, Walgreens, Family Dollar and FedEx, with 98.8 percent occupancy. It had declared 673 consecutive monthly dividends as of its second-quarter 2026 report, and on September 8, 2026 it announced its 136th dividend increase since its 1994 NYSE listing. Its Form 10-Q for the quarter ended June 30, 2026 reports investment grade ratings on its senior unsecured notes and bonds. For many investors who want real estate income, its shares can be a reasonable way to own net lease real estate.
But the business model contains a detail that matters to anyone with seven figures to invest. Realty Income’s real estate acquisitions in the first half of 2026 carried an initial weighted average cash yield of 6.5 percent (its pro-rata share of all first-half investments, including development and loans, was $4.7 billion at 7.2 percent), and its annualized dividend yield was 5.2 percent at its June 30, 2026 share price. Those two numbers are not directly comparable: the acquisition yield is property income divided by purchase price, while the dividend yield is the dividend divided by a share price that reflects the company’s leverage, overhead, retained cash flow and the market’s growth expectations. What is clear is that the shareholder does not deduct the buildings’ depreciation; that deduction stays with the REIT.
An investor can buy the same kind of building Realty Income buys, leased to the same kind of tenant, under the same kind of triple net lease. The question is not whether that is possible. It is who it makes sense for, and at what check size.
What a net lease REIT gives you
A real estate investment trust lets investors own income-producing commercial real estate without buying, managing or financing it. For net lease specifically, the largest REITs offer something no individual can replicate: diversification across thousands of properties and hundreds of tenants. Realty Income’s portfolio spans 1,798 clients in 92 industries. W. P. Carey owns full or partial interests in 1,748 properties, substantially all net leased to 384 tenants. NNN REIT owns 3,774 properties in all 50 states. (All figures as of June 30, 2026.)
That diversification is the REIT’s decisive advantage. When one tenant closes a store, the portfolio barely notices. When a retailer files for bankruptcy, the damage is spread across thousands of other rent checks. A public REIT also offers daily liquidity, professional management, audited reporting, access to the bond market (on investment grade terms for REITs rated investment grade, such as Realty Income) and a dividend that can grow as the company acquires. Realty Income has raised its dividend more than 130 times since 1994.
For an investor with $5,000, $50,000 or $250,000, none of that can be built privately. Nobody should buy a single building with $50,000. The REIT is the right answer, and our REIT dividend safety rankings show which net lease REITs have the balance sheets to keep paying.
What direct NNN ownership gives you that a REIT cannot
Direct ownership gives up diversification and liquidity. In exchange it hands the investor four things the REIT structure keeps for itself.
The full cap rate. A direct buyer collects the building’s rent, not a dividend after corporate overhead. Across the active listings InvestmentGrade.com tracks, the median asking cap rate is 6.35%, with the middle half of listings between 5.75% and 7.13% as of October 16, 2026, against Realty Income’s 5.2 percent dividend yield at June 30, 2026. Asking cap rates are not closed-sale cap rates, and pricing depends on credit, term and location. See current benchmarks in the NNN cap rate report.
Depreciation. A commercial building (not the land under it) depreciates over 39 years. That non-cash deduction shelters a large share of the rent from current tax. A cost segregation study can reclassify part of the building into 5, 7 and 15-year property, and 100 percent bonus depreciation, made permanent by the 2025 tax law for property acquired after January 19, 2025, lets the owner deduct those components in the year they are placed in service, provided they qualify under IRC 168(k) (used property must also meet the acquisition rules of IRC 168(k)(2)(E)(i), such as not being bought from a related party). A REIT shareholder receives none of this directly; the REIT’s depreciation stays at the company level and reaches shareholders at most as a return of capital portion of the dividend.
Section 1031. A directly owned property can be sold and its gain deferred into another property through a like-kind exchange, repeatedly. REIT shares are securities, not real property, so a gain on REIT stock is taxed when sold. An investor already inside a 1031 exchange cannot buy REIT shares as replacement property.
Control. The direct owner chooses the tenant, the lease term, the location, the debt and the sale date. The REIT shareholder delegates all of it to management.
The worked example: $2 million, two ways
The comparison below uses the same $2 million, federal income tax at the top 37 percent bracket plus the 3.8 percent net investment income tax, no state tax, and a full year of depreciation. The REIT column uses Realty Income’s annualized dividend yield of 5.2 percent at June 30, 2026, as stated in its quarterly report; the yield changes with the share price. It is illustrative, not a forecast, and every investor’s tax position differs.
| Realty Income shares | One NNN property, all cash | Same property, with cost segregation (year one) | |
|---|---|---|---|
| Investment | $2,000,000 | $1,960,000 property plus about $40,000 closing costs | Same |
| Yield | 5.2% dividend | 6.75% cap rate | 6.75% cap rate |
| Annual income | $104,000 | $132,300 | $132,300 |
| Deduction against that income | 20% Section 199A deduction | $40,200 straight-line depreciation | About $422,000 (bonus plus straight-line) |
| Federal tax | About $34,700 (33.4% effective) | About $37,600 | $0, plus about $290,000 of loss carried forward |
| After-tax income | About $69,300 | About $94,700 | $132,300 |
The REIT line uses the 20 percent deduction for qualified REIT dividends under Section 199A, which the 2025 tax law made permanent and which brings the top federal rate on REIT dividends to 29.6 percent before the 3.8 percent investment income tax. Some of a REIT dividend may be classified as return of capital, which defers tax rather than eliminating it. The property line assumes 20 percent of the price is land (not depreciable) and a cost segregation study that reclassifies 25 percent of the building basis, an illustrative assumption; actual results depend on the building and the study. Equipment-heavy formats such as car washes, quick-service restaurants and medical facilities may reclassify more; see cost segregation for NNN properties and bonus depreciation for NNN investors.
Three honest caveats keep this from being a sales pitch. First, a year-one loss larger than the rent is generally a passive activity loss under IRC 469 and carries forward to offset future passive income. It can offset W-2 or business income if the investor (or, on a joint return, either spouse separately) qualifies as a real estate professional under IRC 469(c)(7) and materially participates in the rental activity, or, for owners who actively participate, within the $25,000 allowance of IRC 469(i), which phases out as modified adjusted gross income rises from $100,000 to $150,000; other loss limits can still apply. Second, depreciation reduces the owner’s basis, so the gain it creates is taxed when the property is sold in a taxable sale, partly as ordinary income on cost-segregated components (IRC 1245), and the benefit is largely a deferral. A Section 1031 exchange can defer that tax, but recapture can still apply in an exchange, especially on cost-segregated components (IRC 1245(b)(4), 1250(d)(4)), and only real property qualifies under IRC 1031(a)(1). Heirs generally receive a basis equal to fair market value at death (IRC 1014). Third, a REIT dividend can grow over time (Realty Income’s dividends paid per share rose 1.2 percent in the first half of 2026 from a year earlier), while a single NNN lease may carry flat rent or fixed increases; confirm the schedule in the lease.
Leverage in 2026: why the direct case rests on tax, not debt
Older comparisons of REITs and direct NNN lean on leverage: borrow at 5 percent, buy at 7, pocket the spread. That math does not work in 2026. Commercial mortgage rates are often priced at a spread over Treasury yields or other benchmarks, and the 10-year Treasury was 5.24% on October 1, 2026, so the example below assumes a 6.75 percent loan rate. Using the same $2 million to buy a $3.85 million property at 50 percent loan-to-value, 6.75 percent interest and 25-year amortization produces about $100,000 of cash flow after debt service, a 5.0 percent cash-on-cash return, versus 6.6 percent all cash.
Leverage still doubles the depreciable basis and builds equity through principal paydown, so it can make sense for an investor who needs larger deductions. But in this rate environment the reason to own directly is the tax treatment and the 1031 path, not cheap debt.
Who should own what
| Capital to invest | Better fit | Why |
|---|---|---|
| A few hundred to about $250,000 | Net lease REIT | Diversification, liquidity and low transaction costs. A single property is not practical at this size. |
| About $250,000 to $1 million | Depends on the investor | Small NNN properties exist at this size: in the listings we track, a quarter of Dollar General listings ask $0.97M or less and a quarter of Family Dollar listings ask $0.96M or less, and buyers may need financing. Investors in a 1031 exchange can compare a small direct property with a DST interest; see direct NNN vs DST. |
| About $1 million to $10 million | Often direct NNN | Large enough to buy one to several quality properties, and the tax and 1031 advantages compound with size. |
| More than $10 million | A portfolio of direct NNN, often alongside REITs | Enough to diversify across tenants, sectors and regions; REIT shares can hold the liquid sleeve. |
Four investor profiles fit direct ownership best. The first is the 1031 exchanger who has sold an apartment building, a business property or a portfolio and is on a 45-day identification clock; REIT shares are not an option for that capital at all. The second is the business owner or seller facing a large gain who wants the deferral and the depreciation. The third is the high-income earner seeking depreciation, with the real estate professional caveat above. The fourth is the retiree or family office that wants lease income that does not move with the stock market and a clean asset to pass to heirs at a stepped-up basis.
When not to buy a REIT, and when not to buy a building
Skip the REIT and look at direct ownership when the money is already inside a 1031 exchange, when the investor is in a high bracket and can use depreciation, when the capital can stay put for five years or more, when the investor wants to choose the specific tenant and location, or when daily share price swings would push the investor to sell at the wrong time. REIT share prices move with interest rates and the stock market even when the underlying rent collections hold steady; the 10-year Treasury yield moved from 4.12% a year earlier to 5.24%.
Skip the building and buy the REIT when the amount is under about $250,000, when the money may be needed within a few years, when the investor cannot tolerate one tenant representing all of the income, when the investor holds the money in an IRA or 401(k) where depreciation has no value, or when nobody on the investor’s side can underwrite a lease, a guaranty and a site. A single NNN property is only as good as its lease obligor, rent level and residual real estate, which is why tenant credit ratings and site quality both matter.
Buying what Realty Income buys
The simplest way to build a direct portfolio is to study what the best net lease REITs own and why. Realty Income’s largest industries by rent are grocery, convenience stores, home improvement, dollar stores and quick-service restaurants: businesses with necessity traffic and resistance to e-commerce. Its largest clients as of June 30, 2026 were Dollar General, 7-Eleven, Walgreens and Family Dollar. Properties leased to each of those tenants are also offered in the private market, where individual buyers and REITs can bid for the same properties.
That competition is the other reason to understand the REITs. When Realty Income’s cost of capital is low, it can bid more aggressively for the same properties private buyers want; when its shares fall, it may slow buying, which can leave more room for private buyers. Our analysis of what REIT credit ratings tell private NNN buyers explains how to read that signal, and the detailed Realty Income grade, dividend history and credit profile are at REIT Rankings. For the same comparison built around NNN REIT, with a leveraged example, see NNN REIT vs direct ownership: the after-tax case. To compare the income streams themselves, see REIT dividends vs NNN rent checks.
Bottom line
Realty Income proves the net lease model works at scale, and for many investors its shares can be a reasonable way to own it. For the investor with $1 million or more, a tax bill to manage or a 1031 deadline to meet, the same kinds of buildings are available directly, with the full cap rate, the depreciation and the exchange path that a shareholder never receives. The decision starts with the size and source of the capital, not with the yield quote.
Investing $1 million or more, or inside a 1031 exchange?
Investment Grade represents buyers of investment-grade net lease property nationally: dollar stores, convenience, pharmacy, auto, quick-service, medical and industrial, on and off market. Tell us the amount, whether it is 1031 money and your timeline, and we will show you what the same tenants trade for directly, with cost segregation coordinated before closing. On the majority of transactions, there is no separate fee to you as the buyer; the listing broker pays a cooperating commission.
Start a conversation or email team@investmentgrade.com. Working a 1031 deadline? Use the 1031 NNN decision router or browse NNN properties for sale.
Net Lease REITs vs Direct NNN: Frequently Asked Questions
Is it better to buy Realty Income stock or a triple net property?
It depends on the amount and the tax situation. Below about $250,000, Realty Income shares are often the more practical choice because they offer diversification across more than 15,500 properties (15,588 as of June 30, 2026, per its Form 10-Q) and daily liquidity. Above about $1 million, and especially inside a 1031 exchange, direct NNN ownership can produce more after-tax income because the owner collects the full cap rate and claims depreciation. In our $2 million example, the REIT netted about $69,300 after federal tax and the direct property about $94,700.
Can I use a 1031 exchange to buy REIT shares?
No. Section 1031 applies only to real property, and publicly traded REIT shares are securities. A seller in a 1031 exchange must acquire replacement real property (IRC 1031(a)(1)), such as a directly owned NNN building or an interest in a Delaware statutory trust (DST) structured as described in IRS Revenue Ruling 2004-86, which held that real property may be exchanged for such an interest under Section 1031 if the other requirements are met. A later contribution into a REIT’s operating partnership under Section 721 is a separate transaction with its own tradeoffs.
Do REIT shareholders get depreciation benefits?
Not directly. The REIT claims depreciation at the company level. Shareholders may receive part of the dividend as return of capital, which lowers their cost basis and defers tax until sale, and they can deduct 20 percent of qualified REIT dividends under Section 199A. A direct owner deducts the building’s depreciation on their own return and can accelerate it with cost segregation and, for qualifying property, 100 percent bonus depreciation.
How much money do you need to buy a triple net property directly?
Asking prices vary widely by tenant and location. In the listings we track, a quarter of Dollar General listings ask $0.97M or less, and the median Dollar General asking price is $1.39M; a quarter of Family Dollar listings ask $0.96M or less. Financing can reduce the equity required, although at the 6.75 percent loan rate used in our example, leverage lowers the cash yield rather than raising it. Below about $250,000, a REIT is the practical choice.
When is a net lease REIT better than owning property directly?
When the amount is small, when the money may be needed quickly, when the investor cannot accept one tenant producing all of the income, when the money sits in a retirement account where depreciation has no value, or when the investor does not want to underwrite leases and sites. In those cases the REIT’s diversification and liquidity are worth more than the tax advantages of direct ownership.
Sources: Realty Income Form 10‑Q for the quarter ended June 30, 2026; W. P. Carey and NNN REIT Forms 10‑Q for the quarter ended June 30, 2026; Realty Income 136th dividend increase, September 8, 2026; Realty Income portfolio overview; Realty Income second quarter 2026 earnings release (Form 8-K, August 5, 2026); IRS like-kind exchange tax tips; 26 U.S.C. 168, 199A, 469, 1014, 1031, 1245, 1250 and 1411; IRS Revenue Ruling 2004-86; FRED 10-year Treasury.
Educational content only. This article is educational and is not tax, legal, securities, or investment advice. The worked example is illustrative, uses federal rates only and simplified assumptions, and will differ from any investor’s actual results. 1031 exchange rules, depreciation, securities products, financing decisions, and property acquisitions should be reviewed with qualified tax, legal, securities, investment, lending, and real estate advisors before any transaction.
