How to get started

5 Replies

I know someone who buys buildings and rents them to restaurants like Applebee’s. How does one evaluate these investments and how would I get started? Please recommend some books. Thank you in advance.

It sounds like you are talking about re-purposing an existing building rather than building new as a developer.

You buy for a certain basis and then turn around and find the tenant.

On sell off new Applebees are about 2 to 3 million in price with a cap in the 7's for a 15 to 20 year primary term lease and annual rent bumps of about 1.75 to 2.25 depending on who is guaranteeing the lease.

NNN investor typically has to put 25 to 30% down of the purchase price. Developer has to know their all in costs when selling. Generally they might be into the building for a 9 cap and selling at a 7 cap for the spread.

Originally posted by @Joel Owens :
It sounds like you are talking about re-purposing an existing building rather than building new as a developer.

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Joel thank you for answering. I will have to ask him, but I do not think he is redoing the buildings. Obviously investments of this scale require that I would go in as a partner. I understand most of what you said in your post, but I would appreciate any book or internet sites you can recommend to educate me on the basics of commercial properties. I have no experience with it.

Originally posted by @Joel Owens :

On sell off new Applebees are about 2 to 3 million in price with a cap in the 7's for a 15 to 20 year primary term lease Generally they might be into the building for a 9 cap and selling at a 7 cap for the spread.

I assume you mean cap rate which is NOI over purchase price. Can you please expand on what you mean? Are you saying that most investors only achieve a cap of 7 while triple net get 9? Sorry I am a little lost.

Hi Steve,

What I am saying is the developer on a true triple net property where they locate the land, build out the building, find the tenant, and lease It out has fixed costs.

So as a developer of NNN you have to know what a finished product will sell for in the open market.

A Mcdonalds or a Chick Fila sell for in the 4 to 5 caps range. An Applebees is in the 7's generally.

So a developer on an Applebees for land purchase, land scraping, and building the property might be into it for a total of a 9 cap based on the primary lease term that is signed for cash flow.

The developer turns it around and sells for a 7 cap and moves on to another project. The difference between the costs in and the selling cap off to a buy and hold investor is the profit spread minus resale and closing costs.

Joel how does the average investor get involved in this? Do I just call a commercial realtor and say I want to partner up with others? I probably sound naive, but I want to learn.