Why NNN Investors Prefer Tennessee State: Higher Growth & Competitive Cap Rates Explained
Future Holding for NNN Property Investments in Tennessee
Triple Net Lease (NNN) properties, where tenants cover property taxes, insurance, and maintenance, continue to be a smart choice for investors seeking stable, low-management returns. In Tennessee, they remain highly appealing due to several compelling factors:
1. Economic & Population Growth
Tennessee’s population is projected to approach 8 million by 2040, driven by strong net migration and diversification, with notable growth in Hispanic, Black, and multiracial communities. Major employment hubs, especially in the Nashville–Knoxville corridor and the Tennessee Technology Corridor, continue drawing businesses and talent
2. Stability & Demand for NNN Properties
Retail and industrial sectors in Tennessee, particularly in Nashville, display remarkably low vacancy and high demand. For example, Nashville’s retail vacancy hovers around 3.1%, with robust annual rent growth around 2.7%. Meanwhile, net lease markets nationally are stabilizing, with cap rates plateauing around 6.79%, indicating a more balanced, less volatile investment climate
3. Market Trends & Cap Rates
In Nashville’s retail NNN sector, asking cap rates are around 5.5%, with recent sales averaging 5.4%. Multifamily cap rates: Nashville sees 5.7–7.3% depending on asset class (value-add on high end); Knoxville exhibits slightly lower but compressed rates: A-class at 4.74%, B-class around 4.92%, and C-class around 5.38%
4. Financing Considerations for NNN Investors
While specific Tennessee thresholds for net worth or income requirements aren’t explicitly published, multifamily buyers often face CAPEX demands and may need 35–40% down payments, with cash-on-cash returns dipping below 4% in some competitive markets. As cap rates normalize, investors increasingly evaluate tenant credit, lease length, and macroeconomic stability as critical factors
5. Local Market Opportunities
Nashville Retail: Tight supply and strong absorption make it ripe for net lease investments, especially build-to-suit, freestanding, or experiential retail featuring strong tenant demand
Multifamily Sector: Stabilizing fundamentals, moderate new deliveries, and high absorption rate signal steady performance across Nashville metros
Industrial/Logistics: With the state’s strong population and tech-driven employment growth, industrial NNN properties in Tennessee are well-positioned to benefit from continued demand and rent growth
1031 Exchanges: Although direct Tennessee-specific data is unavailable, national trends indicate reduced 1031 activity amid higher financing costs, which may affect investors seeking tax-deferred exchange opportunities
1. Cap Rates & Investment Returns
While specific triple-net (NNN) cap rate data for Tennessee isn’t widely published, the state’s commercial real estate markets, particularly in retail, industrial, and logistics sectors, benefit from strong fundamentals like low vacancy and rising rents, which can support attractive yields relative to national averages. If you’d like, I can pull recent local CRE reports for Nashville or Memphis to better estimate cap rates.
2. Affordable Acquisition Costs
Tennessee generally provides more affordable acquisition opportunities compared to high-priced coastal markets while still housing major national retailers and strong fundamentals in emerging submarkets across Nashville, Knoxville, and Chattanooga.
3. Growing Population & Economic Development
Tennessee is experiencing solid growth in population and major economic activity, with large-scale investments underway such as BlueOval City, the mega campus by Ford projected to launch operations soon, alongside expansions in healthcare, logistics, and tech sectors.
4. Pro-Business, Tax-Incentive Environment
- Tennessee imposes no personal income tax on wages, salaries, interest, or dividends—having fully repealed the Hall Income Tax in 2021
- Instead, businesses (including LLCs) pay a 6.5% excise tax on net earnings and a 0.25% franchise tax on net worth or book value of property—minimum $100 annually
- The state offers robust incentives: job tax credits ($4,500 per job), industrial machinery tax credits, fast-track workforce grants, and property tax abatements via PILOT-type programs
5. Reliable Tenant Demand: Retail, Logistics, QSRs
Tennessee’s logistics infrastructure, including a central U.S. location, major interstates, rail lines, and freight air connectivity via Memphis (one of the busiest cargo airports), bolsters investment in industrial NNN properties. The state’s strong industrial and retail base supports demand for properties leased to essential retailers or quick-service restaurants.
6. Holding Company & Passive Income Tax Advantages
Tennessee remains highly tax-friendly: there is no personal income tax on passive income earned by individuals or LLC members. While LLCs do face excise and franchise taxes, there may be planning strategies, such as consolidated return elections, to manage those liabilities
Income Taxes
Tennessee’s Tax Advantages for NNN Investors: A Smart Choice for Net Lease Properties
Tennessee provides several tax advantages that make it an appealing choice for NNN investors seeking higher net returns and reduced tax burdens. Its tax structure offers significant benefits compared to many high-tax states.
1. No State Income Tax on Passive LLC Income
Tennessee does not impose a state personal income tax, meaning passive rental income earned through an LLC is not taxed at the individual level. This allows NNN investors to retain more of their earnings and improve overall cash flow.
2. Franchise & Excise Taxes with Family-Owned Exemption
Tennessee applies a 6.5% excise tax on net earnings and a franchise tax of 0.25% on net worth or property value. However, family-owned non-corporate entities (FONCE) that own and operate passive investments, such as rental properties, may qualify for a complete exemption from these taxes. The exemption must be applied for and renewed annually.
3. No Personal Income, Capital Gains, or Estate & Inheritance Taxes
Tennessee has no state-level personal income tax, no capital gains tax, and no estate or inheritance tax. This makes it an attractive location for investors planning property sales, 1031 exchanges, or transferring assets to heirs.
4. Low Property Tax Rates
The state’s effective property tax rate averages around 0.49%, placing it among the lowest in the nation. While rates vary by county and city, they are generally far below those in high-tax states, reducing long-term holding costs for NNN properties.
5. No Separate Capital Gains Tax
Since Tennessee does not have a personal income tax, capital gains are not taxed at the state level. This provides investors with greater flexibility and higher net proceeds when selling properties.
6. Consideration: High Sales Tax
Although Tennessee’s property and income taxes are low, its combined state and local sales tax rate is among the highest in the country at around 9.5%. While this does not directly impact rental income, it can increase operating expenses for property maintenance and supplies.
Investing in NNN properties in Tennessee can offer strategic advantages, especially in counties experiencing meaningful population growth and robust economic development. These areas enable tenants to handle taxes, insurance, and maintenance, making NNN investments ideal for a hands-off approach.
1. Davidson County (Nashville):
Population Growth: In 2024, Davidson County recorded the highest population gain in the state, outpacing Rutherford County for the first time since 2015
Economic Development: As the state capital and hub of music, healthcare, technology, and logistics, Nashville continues to attract businesses and residents.
Investment Potential: High population inflow and diverse economic activity make Nashville and surrounding suburbs appealing for NNN investments in retail, office, and mixed-use properties.
2. Rutherford County (Murfreesboro):
Population Growth: Rutherford County’s population increased to approximately 367,100 by 2023, and projections suggest continued rapid growth, including becoming Tennessee’s third-largest county by 2050.
Economic Development: Part of the Nashville metro area, Murfreesboro benefits from spillover growth, job expansion, and strong housing demand.
Investment Potential: Rising population and commercial activity support demand for NNN properties, especially in retail and suburban office markets.
3. Hamilton County (Chattanooga):
Population Growth: Hamilton County reached an estimated population of 386,256 in 2024, marking a 5.3% increase since 2020 (about 1.25% annually).
Economic Development: Anchored by Chattanooga, known for its advanced infrastructure, logistics, and growing tech sector.
Investment Potential: Salted by the region’s economic resurgence, NNN assets in retail, industrial, and office sectors could perform well.
4. Montgomery County (Clarksville):
Population Growth: Population projections show Montgomery County at over 248,000 in 2024, up from 231,000 in 2020, a 7.6% rise. The city of Clarksville itself sees 4,000–6,000 new residents annually
Economic Development: Proximity to Fort Campbell and growth in manufacturing and logistics enhance the county’s appeal.
Investment Potential: Strong demand for housing and services enables NNN opportunities in retail and essential-use centers.
5. Wilson & Maury Counties (Rural Growth Leaders):
Population Growth: Wilson County gained approximately 5,081 residents in 2023, marking a 3.2% growth rate. Maury County increased by about 2,764 residents in the same year, reflecting a 2.6% growth rate.
Economic Development: These counties are benefiting from the Nashville metro’s continued expansion, with spillover growth driving demand for housing, retail, and small businesses.
Investment Potential: As emerging ex-urban markets, Wilson and Maury Counties present strong opportunities for neighborhood retail centers and service-oriented NNN properties that cater to growing communities.
Pros:
1️⃣ Healthy Cap Rates vs. Coastal Markets
While exact statewide data for NNN cap rates is limited, NNN properties in Tennessee (industrial, suburban retail) typically offer competitive yields around 6–7%, often outperforming lower-yield coastal markets.
2️⃣ Strong, Hands-Off Investment with Single-Tenant Leases
NNN investments in Tennessee, especially those involving credit-guaranteed tenants like Dollar General or CVS, deliver minimal management headaches and long-term income stability.
3️⃣ Investment in High-Growth MSA Regions
Locations such as Nashville, Knoxville, and Chattanooga are experiencing rapid population and employment growth, boosting demand for retail, medical office, and service-related NNN properties.
4️⃣ Relative Affordability Compared to Major Metros
Tennessee’s lower cost-of-entry allows investors to acquire commercial real estate at more accessible price points, enhancing yield potential versus pricier markets.
5️⃣ Infrastructure & Economic Expansion
With robust logistics networks, industrial development, and strong sectors like healthcare and manufacturing, Tennessee supports sustained tenant demand for NNN properties.
6️⃣ Predictable Cash Flow via Absolute NNN Leases
True (or “bondable”) triple net leases, as commonly used with corporate tenants, ensure tenant responsibility for all property-related costs, promise long-term occupancy, and limit landlord risk.
Cons:
1️⃣ Modest Appreciation Potential
Like many NNN investments, properties with long-term fixed leases may not experience rapid value appreciation even in growth markets.
2️⃣ Single-Tenant Dependency
Most NNN properties are single tenant, meaning vacancy risk is high if the tenant fails to renew. Custom build-outs (e.g., a McDonald’s or Dollar General) may complicate re-leasing.
3️⃣ Limited Upside Due to Tenant Structure
NNN leases often come with fixed rental escalation, income growth may not keep pace with market inflation or property value increases.
4️⃣ Lease Terms May Still Expose Owners
Some lease agreements, such as those for common areas or structural elements, can still impose responsibilities on the landlord.
5️⃣ Tenant Creditworthiness Remains Critical
Unlike bonds, these are real estate assets. If a tenant defaults, the landlord may face sudden income loss and must handle maintenance until re-tenanting.
Tennessee NNN Properties for 1031 Exchange
Invest in Free Standing Single Tenant Triple Net (NNN) Properties in Tennessee
Are you looking for a reliable 1031 exchange replacement property?
At Triple Net Investment Group, we specialize in the sale of single tenant NNN properties and triple net shopping centers across the United States. Our team is dedicated to helping investors find high-quality (Tenant Triple Net) NNN properties in Tennessee and nationwide that align with their financial goals and 1031 exchange requirements.
With our in-depth market knowledge and personalized service, we provide tailored investment strategies for both buyers and sellers of commercial real estate. Whether you’re looking to defer capital gains through a 1031 tax-deferred exchange or want to diversify your portfolio with income-generating assets, our team offers a wide selection of vetted NNN investment properties.
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