Why NNN Investors Prefer Puerto Rico State: Higher Growth & Competitive Cap Rates Explained
Future Holding for NNN Property Investments in Puerto Rico
Triple Net Lease (NNN) properties, where tenants assume responsibility for taxes, insurance, and maintenance, remain a resilient investment vehicle for passive income seekers. In Puerto Rico, the NNN investment landscape is gaining momentum, supported by favorable economic incentives, infrastructure development, and a strategic Caribbean location.
1. Economic Recovery and Government Incentives
Puerto Rico’s economy is undergoing a steady recovery, supported by robust federal funding, tax incentives, and infrastructure investments. Programs like Act 60 (formerly Acts 20 and 22) offer attractive tax advantages to individuals and businesses relocating to the island. This pro-business environment has spurred demand for commercial properties, making NNN investments particularly compelling.
2. Stability of NNN Lease Structures in a Unique Market
Despite Puerto Rico’s territorial status, NNN lease structures function similarly to those on the mainland U.S. These long-term leases offer stable, predictable income while transferring most property responsibilities to the tenant. For absentee landlords and institutional investors, this reduces management burden and operational risks, particularly in a geographically distinct market like Puerto Rico.
3. Market Trends and Cap Rate Advantage
Puerto Rico offers higher-than-average cap rates compared to most U.S. states, which can translate into stronger cash flow returns for investors. While cap rates for mainland NNN properties average around 5%–6%, properties in Puerto Rico often see cap rates in the 6.5%–8.5% range, depending on location, tenant creditworthiness, and lease duration.
4. Entry Requirements and Financial Considerations
Investors in NNN properties in Puerto Rico typically face similar financial thresholds as those on the mainland: a net worth of $1 million or an annual income above $200,000. Down payments range from 30% to 40%, and financing options may vary slightly due to the territory’s unique legal and banking frameworks. However, U.S. investors benefit from the fact that Puerto Rico uses the U.S. dollar and follows U.S. federal laws, making transactions familiar and accessible.
5. Strategic Local Investment Opportunities
Puerto Rico offers diverse NNN opportunities across retail, industrial, and medical office sectors. Growing urban hubs like San Juan, Bayamón, and Ponce are seeing increased commercial activity, including new developments with national tenants such as Walgreens, AutoZone, and CVS. These properties are often eligible for 1031 exchanges, enabling investors to defer capital gains tax while reinvesting in high-yield assets.
Triple-net (NNN) investors are increasingly eyeing Puerto Rico as an emerging market for net lease properties, thanks to its favorable tax incentives, strategic location, and higher cap rates. Here’s why NNN brokers and investors view Puerto Rico as a high-potential destination for stable, long-term income:
1. Higher Cap Rates Than Mainland U.S.
Puerto Rico consistently offers higher cap rates, often ranging from 6.5% to 8.5%, compared to prime mainland markets where cap rates often fall below 5%. This gives NNN investors an opportunity to earn higher yields, especially on properties leased to national or creditworthy tenants.
2. Attractive Tax Incentives Under Act 60
Puerto Rico offers powerful tax incentives under Act 60 (formerly Acts 20 & 22). These include 0% capital gains tax on Puerto Rico-sourced income and reduced corporate tax rates, making it especially attractive for real estate investors relocating to the island or structuring deals through local entities. NNN investors using 1031 exchanges can further defer capital gains while taking advantage of the island’s tax regime.
3. Strategic Location with U.S. Legal System
As a U.S. territory, Puerto Rico uses the U.S. dollar, follows U.S. legal and banking systems, and offers familiar lease structures, including triple-net leases. This makes it easier for mainland NNN investors to navigate transactions while benefiting from international-style opportunities in a U.S.-regulated environment.
4. Strong Demand for Essential Retail & QSRs
As a U.S. territory, Puerto Rico uses the U.S. dollar, follows U.S. legal and banking systems, and offers familiar lease structures, including triple-net leases. This makes it easier for mainland NNN investors to navigate transactions while benefiting from international-style opportunities in a U.S.-regulated environment.
5. Affordable Entry with Growth Potential
Commercial property prices in Puerto Rico are generally lower than comparable assets in high-cost mainland states, giving investors affordable access to single-tenant and multi-tenant NNN properties. Markets like San Juan, Bayamón, Guaynabo, and Ponce offer solid tenant demand and future appreciation potential as economic development accelerates.
6. Growing Demand for Essential Retail and Medical Tenants
Puerto Rico’s consumer market supports strong demand for essential retail, quick-service restaurants (QSRs), and medical office spaces. National brands such as Walgreens, CVS, AutoZone, Burger King, and McDonald’s maintain a strong presence across the island, providing stable lease agreements and recession-resistant tenant profiles for NNN brokers and investors.
Income Taxes
Puerto Rico’s Tax Advantages for NNN Investors: A Unique Opportunity for Net Lease Properties
Puerto Rico presents a compelling tax environment for NNN investors, combining U.S. legal protections with extraordinary local tax incentives. While technically part of the U.S., Puerto Rico has a distinct tax code that allows for unmatched income tax savings, especially for investors who qualify under the island’s economic incentive programs. Here’s why NNN brokers and investors should consider Puerto Rico for their next strategic investment:
1. 0% Capital Gains Tax Under Act 60 (for Qualified Residents)
One of Puerto Rico’s most attractive features is Act 60, which consolidates previous tax incentive laws (Acts 20 & 22). Under Act 60, bona fide residents of Puerto Rico can benefit from 0% tax on Puerto Rico-sourced capital gains, including gains from the sale of NNN properties located on the island. This creates a powerful tax shield for investors using 1031 exchanges or planning long-term exit strategies.
2. 4% Corporate Tax Rate for Export Services (Including Real Estate Services)
Under Act 60’s Export Services Incentive, individuals or entities offering services such as real estate consulting, leasing, and property management to clients outside Puerto Rico may qualify for a flat 4% corporate income tax rate. This is ideal for NNN investors managing U.S. portfolios from a Puerto Rican base.
3. Personal Income Tax Exemptions for Act 60 Residents
Qualified individuals under Act 60 who become bona fide residents of Puerto Rico are exempt from Puerto Rico income taxes on all Puerto Rico-sourced passive income, including dividend and interest income. This creates a significant opportunity for high-net-worth NNN investors to retain nearly all of their investment income, a rare benefit not available in any U.S. state.
4. No Federal Income Tax on Puerto Rico-Sourced Income (for Residents)
Puerto Rico residents do not pay U.S. federal income tax on Puerto Rico-sourced income, including rental and capital gains income from properties on the island. This creates a unique dual-tax advantage where investors avoid both state and federal income taxes on qualifying income streams.
5. No Estate or Inheritance Tax
Puerto Rico does not impose estate or inheritance taxes, making it easier for investors to transfer wealth and NNN property holdings to heirs without incurring heavy financial penalties. This aligns with long-term estate planning goals and supports intergenerational wealth-building through real estate.
6. Competitive Property Tax Rates
Puerto Rico’s property tax system features moderate rates, generally ranging from 0.5% to 1.0% of assessed value (which is typically lower than market value). This helps reduce annual holding costs for NNN investors and enhances long-term returns on rental income.
Investing in Triple-Net (NNN) Properties in Puerto Rico
NNN properties, where tenants handle taxes, insurance, and maintenance, are gaining traction in Puerto Rico, especially in municipalities benefiting from renewed migration and economic revitalization.
1. Guaynabo:
Population Growth: Guaynabo was among the leading municipalities with positive population gains between mid‑2023 and mid‑2024, marking a demographic turn in many parts of the island.
Economic Development: Situated within the San Juan metropolitan area, Guaynabo features affluent residential neighborhoods, modern commercial zones, and growing office infrastructure.
Investment Potential: Attractive for NNN investments in upscale retail, corporate office leases, and essential services, benefiting from both local demand and mainland investor interest in tax-incentivized assets.
2. Bayamon:
Population Growth: Bayamon also recorded population growth during the same period, signaling increasing urban demand.
Economic Development: As Puerto Rico’s second-most populous municipality, Bayamon serves as a key logistical and commercial hub with growing retail, service, and entertainment sectors.
Investment Potential: Ideal for NNN properties hosting retail anchors, QSRs, and mixed-use centers that capitalize on urban density and daily consumer traffic.
3. Arecibo:
Population Growth: Arecibo was another municipality showing demographic gains in 2023–2024.
Economic Development: Known for its ports, research facilities (e.g., Arecibo Observatory), and coastal industry, Arecibo offers logistical advantages and local commerce.
Investment Potential: Especially suited for industrial NNN properties, distribution facilities, and service-oriented retail serving regional demand.
4. Caguas:
Population Growth: Caguas, with 127,244 residents (2020), ranks as the fifth-largest municipality. It’s a vibrant component of the San Juan metro area.
Economic Development: Offers a mixture of urban, suburban, and industrial zones alongside strong retail and healthcare markets.
Investment Potential: High for medical office space, neighborhood retail centers, and long-term NNN leases catering to commuter and local demand.
5. Dorado:
Population Growth: Dorado has seen significant luxury real estate growth, with property values increasing sharply, 66% growth in upscale areas between 2016 and 2019.
Investment Potential: Promising for high-end retail and lifestyle NNN investments, such as national retailers servicing affluent communities, resort-adjacent shopping, and medical or service-oriented leases.
Pros:
1️⃣ Higher Cap Rates
Cap rates in Puerto Rico typically range from 6.5% to 8.5%, significantly higher than mainland U.S. averages (especially compared to states like NY or CA). Investors can earn stronger cash flow and yields from commercial properties leased to national and regional tenants.
2️⃣ Unique Tax Advantages (Act 60)
Under Act 60 (formerly Acts 20/22), qualified residents can enjoy:
0% tax on Puerto Rico-sourced capital gains
4% corporate income tax rate for eligible export service businesses.
These incentives make Puerto Rico one of the most tax-efficient U.S. jurisdictions for real estate investors.
3️⃣ No Federal Income Tax on PR-Sourced Income
Bona fide residents of Puerto Rico do not pay U.S. federal income tax on income sourced from the island (including rental income). This allows for significant income retention compared to high-tax states.
4️⃣ Moderate Property Prices
Property prices in Puerto Rico remain more affordable than in many coastal U.S. states. Investors can acquire prime retail or mixed-use NNN properties at lower entry points.
5️⃣ Growing Population in Key Areas
In 2024, 43 municipalities posted population growth, reversing long-standing declines (source). Places like Guaynabo, Bayamón, and Dorado are attracting residents, driving demand for retail, healthcare, and service-oriented tenants.
6️⃣ U.S. Legal and Currency Systems
Puerto Rico uses the U.S. dollar, follows U.S. commercial law, and provides the same lease enforceability protections as mainland real estate. This makes it easier for U.S.-based investors and NNN brokers to navigate deals.
7️⃣ Rebuilding & Infrastructure Investment
Billions in federal funding (post-Hurricane Maria) have been allocated for roads, energy grids, and housing, spurring demand for commercial spaces. NNN properties near development zones stand to benefit from long-term appreciation and tenant growth.
Cons:
1️⃣ Complex Tax Qualification Requirements
While Act 60 offers tax benefits, investors must relocate and meet bonafide residency requirements to fully qualify (e.g., 183+ days on the island, closer connection test). Passive investors not living in PR may not access full tax benefits.
2️⃣ Market Liquidity & Exit Strategy Challenges
The commercial real estate market in Puerto Rico is less liquid than in major mainland metros. Reselling NNN properties may take longer, especially outside major metros like San Juan.
3️⃣ Natural Disaster Risk (Hurricanes, Earthquakes)
Puerto Rico lies in a hurricane-prone zone, and parts of the island are also susceptible to earthquakes. These risks may impact insurance costs, tenant stability, and maintenance expenses.
4️⃣ Limited National Retail Presence in Some Areas
Outside urban hubs (San Juan, Bayamón, Guaynabo), there’s less saturation of national tenants like Starbucks, Chick-fil-A, or Whole Foods. NNN investors may need to focus on regional chains or local credit tenants, which could involve higher risk.
5️⃣ Infrastructure & Utility Challenges in Some Areas
While improving, electrical grids and water systems can still be unreliable in rural municipalities. This may affect tenant operations and property maintenance in less developed regions.
Puerto Rico NNN Properties for 1031 Exchange
Invest in Free Standing Single Tenant Triple Net (NNN) Properties in Puerto Rico
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