NNN Absentee/out of state investing

Professional · Riverside, CA · Member since 2009 · 254 posts · 273 votes

Hoping @Joel Owens or someone more experienced in Triple nets can answer.

If looking to invest in an out of state, NNN single corporate lease 10+ years (ie Family Dollar, Starbucks, etc.), how important is it to do actual physical due diligence? I'm not talking about market conditions, financials, comps, etc. I'm talking about having contractors inspect the roof, HVAC, foundation, etc.

I know the best answer is to always do this in case the tenant goes dark. I'm not looking for the best answer. I'm looking for the practical, general investor experience answer.

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Joel OwensBusiness Member

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

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I have an engineer that does phase one, site inspection, and cost reserve stable for one price.

Cost for everything above is in the thousands on average.

Even if NNN with no landlord responsibility we still get the inspection as part of DD process.

If the tenant doesn't renew it is important to know right before the option period kicks in how much life is left on roof, mechanicals etc. as in addition to the TI costs to re-tenant you can get hit with a lot of other capital costs.

Lender is going to order a PCR site inspection report whether the buyer wants to or not. Insurance will also do an ISO inspection on the property separately.

If you are paying all cash then it's up to you what your risk tolerance is versus saving a couple of bucks.

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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
I have an engineer that does phase one, site inspection, and cost reserve stable for one price.
Cost for everything above is in the thousands on average.
Even if NNN with no landlord responsibility we still get the inspection as part of DD process.
If the tenant doesn't renew it is important to know right before the option period kicks in how much life is left on roof, mechanicals etc. as in addition to the TI costs to re-tenant you can get hit with a lot of other capital costs.
Lender is going to order a PCR site inspection report whether the buyer wants to or not. Insurance will also do an ISO inspection on the property separately.
If you are paying all cash then it's up to you what your risk tolerance is versus saving a couple of bucks.
Podcast Guest on Show #47
NNN Invest53 Reviews
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Martin Z.
Glendale, CA · Member since 2013 · 303 posts · 67 votes
11y
You can pay an out of state inspector to do the job, but more importantly, I'd physically checkout a property no matter where before buying.
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Jim Groves
Lender · Chicago, IL · Member since 2015 · 191 posts · 86 votes
11y
Originally posted by @Daniel Chang:

Hoping @Joel Owens or someone more experienced in Triple nets can answer.
If looking to invest in an out of state, NNN single corporate lease 10+ years (ie Family Dollar, Starbucks, etc.), how important is it to do actual physical due diligence? I'm not talking about market conditions, financials, comps, etc. I'm talking about having contractors inspect the roof, HVAC, foundation, etc.
I know the best answer is to always do this in case the tenant goes dark. I'm not looking for the best answer. I'm looking for the practical, general investor experience answer.
If you can get a copy of the lease, review to see what the LL and Tenant responsibilities are for on-going maintenance. If the landlord is responsible for HVAC, Parking, Roof, etc., I wouldn't think it would be too difficult to get access for inspection as it would serve the tenant as well but you should definitely do it. The cost of the inspection is a fraction of the rehab.
But regardless of the condition of the property, I wouldn't buy if I thought the tenant wasn't going to stay at that location. Where the cap rates are these days, you can't afford significant downtime.
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Felix Goldstein
Contractor · Miami, FL · Member since 2015 · 113 posts · 11 votes
11y
i would inspect what the landlord is responsible for. if the tenant is responsible for everything then who cares they have to fix it. i wouldnt even look at a nnn deal. it seems like those corporation would be on top of fixing stuff and making sure everything works. im not the best person to get advise from dont have THAT much experience. would like to know what other people have to say abt this.
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