New to BP and Commercial Investing (NNN)

Joe Odell

OP

Rental Property Investor · North Platte, NE · Member since 2022 · 3 posts · 5 votes

Thanks for taking the time respond Michael.

Zachary Bliss

Realtor · Bradenton, FL (Bradenton) · Member since 2020 · 88 posts · 44 votes

Hello @Joe Odell

I work with eXp Commercial on a team that specializes in Triple Net properties, would love to answer any questions for you if you would like to connect.

H. Jack Miller

Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes

They are a great real estate class for some, You have to know what your getting and doing as well have your goals inline with the deals.

Not all NNN deals are the same and people sometimes confuse a NNN deal with a credit tenant deals.

I have experience in both if you can lay out your goals I can highlight the differences. But I would start looking around for them and see how they pencil out.

Jack

2 Reply

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Office? Industrial? Retail?

There's still a huge range of properties out there. How much equity are you putting down? I personally invest in warehouse, about 100,000 sq ft of NNN leased buildings in DFW.

Josh NixBusiness Member

Lender · Lincoln, NE · Member since 2014 · 304 posts · 101 votes

Hey Joe, I'm located in Lincoln, NE and have also began investing in NNN Commercial properties. I got started in single family over a decade ago. I invest with a team of guy who are all way smarter than me in the Commerical space so it has been an easy transition. Id love to connect if you ever want to talk real estate.

Good Life Lending4.996 Reviews

Website View Page

Wale LawalBusiness Member

Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes

[email protected]832-776-9582 Podcast Guest on Show #469

Welcome to BiggerPockets, you are definitely in the right place. Feel free to ask any questions you may have. We are here to help each other grow.

Goodluck

NETWORTH BUILDERS5236 Reviews

Website View Page

Joe Odell

OP

Rental Property Investor · North Platte, NE · Member since 2022 · 3 posts · 5 votes

Thanks everyone, I really appreciate you taking the time out of your day to respond. I'm still narrowing down my niche area inside of NNN that I'd like to purse, and at the same time trying to put together my team. I'm getting ready to start the process of interviewing some more lenders and trying to find an attorney and brokers that have experience in this area.

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

Hi, I live in North Myrtle Beach and do both STR beach houses as well as commercial investments in STNL and class A and B strip malls. I am the principal, not a broker.

One thing I've learned on NNN deals is those three letters can be interpreted many ways, especially when in a multi-tenant scenario. If perfect, all the landlords expenses are paid for but digging into leases reveals caps on certain expenses (property tax, insurance) or CAM, or certain parts of it, can be excluded from one tenant but added to another.

Make sure you have your attorney complete analysis of the leases prior to the end of due diligence. I haven’t gone through a deal yet when we didn’t find something that raised our eyebrows.

3 Reply

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Quote from @Mark H. Porter:

Hi, I live in North Myrtle Beach and do both STR beach houses as well as commercial investments in STNL and class A and B strip malls. I am the principal, not a broker.

One thing I've learned on NNN deals is those three letters can be interpreted many ways, especially when in a multi-tenant scenario. If perfect, all the landlords expenses are paid for but digging into leases reveals caps on certain expenses (property tax, insurance) or CAM, or certain parts of it, can be excluded from one tenant but added to another.

Make sure you have your attorney complete analysis of the leases prior to the end of due diligence. I haven’t gone through a deal yet when we didn’t find something that raised our eyebrows.

Your comment about an attorney is spot on!

But NNN never means the same thing, I'm not sure what "perfect" is, but only an absolute NNN would have all expenses paid for, and even then it won't include legal/accounting taxes for the Landlord. You're probably referring to just a regular NNN and those often will require LL to maintain the exterior of the building, say the roof and exterior walls. LL will often have to ensure utilities from the street to the building, etc.

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

@Ronald Rohde Ronald, my last STNL was with Walgreens and it was a NN deal as I was responsible for the roof, structure, and utilities from the street to the panel.

All-in-all a good gig as I had a few roof patches which were minor and they pay the property taxes, insurance, and utilities directly.

Things get much more convoluted with multi-tenant as they all negotiate differently. Having the class A nationals is great for drawing other tenants in but let’s face it, they know who holds the cards (e.g “option renewal incentive program”).

John Mocker

Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes

Joe,

As an Insurance Agent I can offer a couple things on triple net leasing. If there is a single tenant, I have seen leases that require them to purchase the Insurance on the building and name the owner. I don't recommend that. You need to have control of the coverage (its your asset) and any billing issues.

I would suggest speaking with an independent insurance agent and discuss the Insurance issues for different types of properties:

- Locations that may be harder to insure or require specialized coverage (earthquake, flood, wildfire, etc.)

- Tenant operations that may be harder to insure (cooking, woodwork, manufacturing, etc.)

- Construction of buildings/fire protection that may impact the insurance (frame construction in a non-hydranted area or one with distant fire depts)

I echo the posts that emphasize the importance of an experienced real estate attorney. You need to structure your leases to protect your income, transfer risk to the tenant, etc. You also need to pay attention to the requirements (insurance and otherwise) for contracts with subcontractors such as snow removal, maintenance, etc.

2 Reply

Paul MoorePro Member

Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes

Podcast Guest on Show #533

@Joe Odell welcome to the BiggerPockets community, I see you got some great responses above. I've looked briefly at NNN properties but I have by no means taken a deep dive. It seems to me that in an inflationary environment, properties with long-term leases could suffer relative to the decreasing value of a dollar. Other asset types like hotels (I wouldn't do one!) and self-storage, on the other hand can capture inflation instantly by raising their prices as they are on very short-term leases (storage is month-to-month). As a result, other asset classes like self-storage, mobile home parks, etc. are able to capture much more appreciation which provides much higher returns for investors.

Like I said, I don’t know what I don’t know about triple-net assets, but this is my two cents. Happy investing!

Joshua JanusBusiness Member

Realtor · Cleveland, OH · Member since 2021 · 1k+ posts · 1k+ votes

[email protected]614-502-5316 Podcast Guest on Show From DoorDasher to $1.5 MILLION in Real Estate (All at 22 Years Old!)

Quote from @Joe Odell:

I wanted to introduce myself and try and connect with some of the other motivated and like minded people here on BP. My name is Joe Odell and I live in the middle of nowhere North Platte, Nebraska, population 26k. Smack dab between Denver, CO and Omaha, NE, about 265 miles to either city.
Although I'm new to commercial investing I do have a background in residential real estate, I was a broker for several years in the Fort Collins area of Northern Colorado. As I said I'm new to commercial real estate, but if there is anything I can do to help anyone, in any way, I'm here to assist.

I'm turning 40 next month and I'm tired of trading my time for money, life is to damn short. I've been busting my *** to get a nice pile of cash built up the last several years to start investing. I recently came across Bigger Pockets, it reminded me how much I loved real estate. After my epiphany that every financial independent/wealthy person I know owns real estate, and a bunch of it, I've been set on a new path. I've been reading everything I can get my hands on, binge streaming Bigger Pockets podcast, and doing anything else I can think of to grow my knowledge base. I think I've narrowed my focus down to Triple Net Leasing (NNN) across the nation. Any tips, warnings, or knowledge from experienced commercial investors would be graciously appreciated.

I guess I'll bring the short novel to a close, I'm sure everyone quit reading at North Platte, NE. Thank you for taking the time to read, and I look forward to connecting.

Joe Odell

Welcome to BP! There are plenty of investor friendly realtors and investors here that you can connect with. There should be local meetups available in your area as well. Read through the old forum posts here as there is plenty of value and wisdom in the old posts!

Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

Podcast Guest on Show #47

Hi Joe,

People are responding with non-optimal answers.

What you need to ask is what is your goal with NNN properties?

As an example my doctor clients make 1 million plus a year income. They do not need a high rate of return with investments. They simply want the money working with time so that when they retire they replace the 1 million active income with passive income and not really a care in the world. So we set out a plan of buying so many properties so every many months or years to get to their goal.

I have clients with 7 to 9 figure net worth that are individuals. I cater to the buyers for individuals and not the institutional money.

Have talked to thousands of investors over the years about NNN properties. I know pretty much within the first 5 minutes if they are realistic or not with what they are trying to do. Example a buyer new to the space might read a few articles and formulate a theory about what they want in an NNN investment without understanding the space. The brokers and investors with decades of experience and hundreds of millions to billions in closed transaction volume have the knowledge and experience to know what is reality versus theory.

Before assembling all these people for a team make sure what you want to do is practical and an actual fit for your goals.

If you are getting a loan as a basic reference most lenders want 7 years plus remaining in primary lease term. Most cap rates require 35% down versus debt rates these days. Lender guide is 10% liquid of loan balance after down payment and net worth equal to the loan balance. If someone is just living off of investments with a few properties and retired then plan on 40% down as borrower more risky to lender even with investment grade credit tenant.

2 million NNN is like 200k house. It's a starter property in NNN for suburban area. There are properties in smaller price ranges but tend to be weak tenant and location or one or the other. Loan below 1 million most of the NNN lenders pass as not worth their time.

NNN Invest53 Reviews

Website View Page

2 Reply

Ramez Qubain

Rental Property Investor · Raleigh, NC · Member since 2014 · 46 posts · 13 votes

@Joe Odell

So funny, i just had the same epiphany last night and decided i wanted to explore the commercial real estate instead of the residential. I am still learning more on why i should make the jump, but my initial assumptions are as follows. Maybe commercial real estate hasn't appreciated at the same rate as residential has in the last two years, i.e. there might be more upside in commercial than residential. the other reason, would be that my capital deployment and time are better suited for bigger assets while still being in the average price. for example, i might be willing to invest 400K as a down payment, the 400k would get me a 2 million home, which is way above the 450k average home in my area, while 2 million might be the average office space which is much easier to find, buy, rent and then sell vs the 2 million home.

what do you guys think, am i thinking correctly about the justification between residential vs commercial?

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Commercial appreciation is not comparable to residential. Commercial is based on net income, cap rate. Residential is just passive reliance on the market...

There is more upside in commercial on a per unit basis, for your time there is nothing higher

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

@Ronald Rohde agree. This past six months or so have seen ridiculously compressed cap rates across all commercial properties classes. However, I was able to 1031 out of a STNL and into two strip malls (one, mostly nationals, the other, all regionals) without having to pay to a 5 cap.

As to appreciation, and as you say, a few renewals with increases and cleanup of CAM and you’re into a very nice appreciation in just a couple of years.

It’s all a matter of your risK tolerance. If the buyer wants low risk they are going for the 10-year leases with 5% increases and are willing to accept a sub-5 cap.. If the buyer is willing to play the renewals in 3 years so they can bargain better for option increases then they can see a +6.5 to whatever. I am the latter.

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

Quote from @Mark H. Porter:

@Ronald Rohde agree. This past six months or so have seen ridiculously compressed cap rates across all commercial properties classes. However, I was able to 1031 out of a STNL and into two strip malls (one, mostly nationals, the other, all regionals) without having to pay to a 5 cap.

As to appreciation, and as you say, a few renewals with increases and cleanup of CAM and you’re into a very nice appreciation in just a couple of years.

It’s all a matter of your risK tolerance. If the buyer wants low risk they are going for the 10-year leases with 5% increases and are willing to accept a sub-5 cap.. If the buyer is willing to play the renewals in 3 years so they can bargain better for option increases then they can see a +6.5 to whatever. I am the latter.

Thats absolutely correct. You know how to play the game, but I suspect your had to learn the hard way and are probably deploying a decent amount of equity.