Triple Net Investing

8 Replies

Hello everyone,

I currently invest in multifamily apartment complexes and I love what I do. However, I was looki ng into something more passive but still in the real estate investing sector. I was scrolling through some commercial properties and saw some NNN and NN leases. I know the differences between them but I have read that you have to be an accredited investor in order to invest in NNN leases. I am close to that mark but not yet. However, since there is a difference between NNN and NN; I did not know if you have to be an accredited investor for the NN lease. Can someone help me understand if it is the same qualification? Thank you.

@Kurt Mace ,  you don’t need to be accredited to purchase a triple net lease investment. You go through a commercial broker, and then you can purchase it just like you would your multi family. 

 However, there are some significant limitations that may make you want to wait until you are accredited. The biggest is that  when you buy on your own, you are not diversified and have all your eggs in one basket. So if one of your properties goes dark and stops paying, you may be experiencing 100% loss of income until you can retenant (which sometimes can be expensive and take a long time ).  Also, you’re probably going to be limited to the least expensive properties available, which may not give you the greatest return or be the best to choose from. 

 To get around those limitations, you can invest in a triple net lease fund  through syndication/Crowdfunding .  There are probably a few that are available to all investors, but most are accredited only.

 If you are not doing a 1031 exchange, then the big thing to look out for is that a lot of these assume that you are, and have big upfront fees.  I like Broadstone Net Lease  because it has very low fees, low leverage, a diversified portfolio of hundreds of properties, and diversified across asset types  and has an investment grade rating. The downside is that it’s not a fit for everyone, because the minimum is pretty high. 

NNN is an interesting topic. My group just brought in a guy who negotiates NNN for a living. The BIG takeaway is that all NNN are not created equal. It is a bit of a myth that NNN means that everything is taken care of by the tenant. BEFORE you get yourself into a mess, you need to review EVERY line of the NNN lease. Some leases exclude things like exterior paint, or damage from vandalism. You can very quickly find yourself actively managing a construction project on what you thought was a NNN property.

Another consideration is what happens when that lease expires or the tenant doesn't renew? For example if you own a NNN on a Tacobell, what will you have to do to rent that property again? How long will it sit when you have a vacancy.

Another thing to consider, is who is the tenant.  Most of the time, it is not the big national franchise on the hook. It can be an individual with limited experience running that business.  If he fails you are back to looking at a long term vacancy. 

For my money, it is a lot easier and safer to be a private lender. You can always find an investor who will pay you more than the NNN lease anyway. All you have to do is ask.

NNN leases are for people who have too much money to intelligently invest. They need a parking place not necessarily an income.

I hope that helps

Josh 

@kurt mace The only NNN property you would have to be accredited to buy (that I know of) would be if it was inside a Delaware Statutory Trust (DST) which isn’t what you’re talking about.

First off I do not agree with this statement.

"NNN leases are for people who have too much money to intelligently invest."

NNN properties can be an excellent way to invest and grow wealth. Just like anything you can buy wrong and lose money. That GOES FOR APARTMENTS as well. I hear the apartment bandwagon all day long. You can lose your shirt in apartments. I was selling apartments before retail. I still do both but focus on larger apartments now for sales.

Remember just because an asset is hot and in the news and everyone talks about it does not mean you can't fail with a property. Multifamily is over hyped right now and some are buying with blinders on. Once you have been through at least one full cycle so you do not buy into that stuff as an investor.

Kurt an absolute NNN investment means you do nothing but collect a check. NN or double net there could be anything written into the lease you are responsible for.

Anything sub 2 million in price for NNN single tenant is tough to find any quality. The cap rates those properties sell at make it tough to leverage and get a loan to make decent cash flow.

If you are a 1031 exchange some options are to own directly, TIC, or DST model.

Now the companies doing TIC or DST they might require an investor be accredited before taking the investment. Same with a syndicator that does not take 1031 money. They might require investor be syndicated as taking non-accredited investors opens up more liability and there is more documentation needed from the investor.

Example an investor with 25k to invest that is worth 100k could claim ignorance and being taken advantage of in a field of investment more easily than and investor worth 4 million who has a track record of investing with private placements.

Kurt how much are you looking to invest? That makes a difference what is available with NNN properties.

I am not sure if this is the best place to post this, but I want to share my experience with Broadstone Net Lease for about 2 years. Since making my investment, I am in the red due to the bankruptcy of a single retailer/renter. One bankruptcy caused a 4.5% decline in share price. I expect further fallout due to the impact of the COVID pandemic on commercial real estate. They have also suspended dividend payments. What concerns me more than anything else, is management's complete refusal to share the pain with their investors. I have expressed my concerns, urging them to do what every other company has done in America, but they refuse to take any steps. They have not reduced compensation at any level, are not planning on reducing bonuses, have not eliminated any benefits like 401k matching, etc..I have raised my concerns with their board, but they have not engaged in the conversation and refuse to reassess their position. I do not feel this fund is well managed and their leadership is out of touch with reality.

Can someone help me understand if it is the same qualification? Thank you.

Depends on how passive the investment. If you re-fi everything and are depending on the STNL for your sole income, it'd be an issue with a syndicator on TICs (I know it's different). Almost everyone I've seen will ask if you're a "qualified" investor (something like $1M net worth NOT counting your primary residence.) However, the major reason is that one bad TIC investor can really muck up stuff.

On STNL, dependent on the lessee (like a corporate place), they usually need some sort of warranty/surety that the lessor (you) is solvent enough to address non-NNN issues (like major CapEx). So that's a lot looser qualification, but it's been asked.

On STNL, remember you are mostly buying a lease, so READ AND UNDERSTAND THE LEASE terms for any "outs" a tenant may have.  Of course, the value of the building is important since if it's purpose-built (i.e. burger place with drive-thru) if they leave, may not be the easiest place to re-purpose or lease.