Starting Out With Absolute/True Triple Net (NNN) Lease Investing

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I'd like to get into this lesser known method of investing in Absolute/True Triple Net (NNN) Leases and I was wondering if it'd be a good thing to start out in as a beginner if you can finance the deal 85% to 100% and have this not be for a 1031 exchange but just to receive passive income. My market for properties would be in North Carolina. What is a good information source and guide to finding these properties and understanding the entire process of acquiring these types of real estate investment vehicles including the risks and how to avoid them. If someone could be put me in touch with the right person(s) to help me get started please don't hesitate to steer me into the right direction. Thanks BP for your support!

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Originally posted by @Account Closed :

NNN, O are the big players. Its not unchartered territory. The big funds get the best. Ma n Pops get the worst. Which are you?

 I would be lesser than the Mom and Pops(I think this is what you meant). But I may be able to receive financing for my deals for this type of investment. Especially if the lease payments are backed by the company. Because these lease payments can run for 10+ years I figured that this could be a great opportunity.

Are you looking for commercial or residential NNN? Residential is a little bit tricky. Commercial NNN are a great investment, though you really need a bigger more reliable tenant because rent comes in lower because of the substantial risk and liability the tenant takes on, so you get less rent, but less headaches... BUT if it comes down to it and the tenant wasn't well vetted and doesn't have the money to fix a roof or handle some of the bigger expenses, NNN concept is actually a bad thing. So basically, I'm a big advocate for the NNN lease, but make sure you get in a good, creditworthy tenant.

NNN are a good way to diversify a portfolio with low-risk, nearly guaranteed cash-flow for the long term. We have gotten into them recently for that reason.

I echo @Jessica Zolotorofe 's point; its all about the tenant. They have to be very strong --- but I would go one step further --- make sure that the property is highly productive (sales, warehouse activity, etc.). Find NNN that are Amazon-proof with strong sales (gas stations, QSRs, etc) and you'll be ok.

Finance the deal 85 to 100%? Triple net?

I do not know what you are reading out there but that is a pipe dream.

Do you have money that is yours 400k,600k,1 million to put down on an STNL freestanding single tenant building or MTNL  ( strip center)?

By the way those properties minimum are 25% down and likely to go to 35 to 40% down if not BBB- or better investment grade tenant.

Not trying to squash your dreams but I look at between 500 to 1,000 om's and flyers a week for my clients nationally for NNN retail STNL and MTNL.

Before getting to deep trying to learn it make sure you have the capacity with the down payment to move forward.

If you are accredited there are some funds where instead of owning directly you own a small slice for a 50,000 investment for example.

If anyone has sources in NC to help in my quest in investing in Triple Net Properties please don't hesitate to contact me. Thanks to the BP community for all the responses!

Originally posted by @Scott Scharl :

@William M. -- I have a good friend who is a NNN investor. Would love to connect the two of you, if you're interested. Could you send me a private message? Thanks.

 Thanks you for the inquiry and I sent you a message.

@William M. how is your search coming along? There was some solid advice given in previous responses, but I'd like to point out what I think it most important for you to start.

1. Know your budget. You will need between $250k to $400k to buy a property between $1M-$2M. You are not going to buy a commercial property with no money down unless you do something strange which will likely spook any Seller.

2. Know how to calulcate the cap rate which is how you evaluate commercial properties. ALWAYS get the lease to understand if there are landlord responsibilities. Higher the cap the higher the risk. Lower the cap the lower the risk. By risk Im talking about credit rating or footprint if they are not a publicly traded company. 

3. Know the difference between NNN and NN and how that will affect your cap rate. Some people only want NNN, but if you are buying a new build with a NN lease with the landlord responsible with structure and roof then should you pass? My anwer to you would be it depends on what your investment strategy is.

4. Find an experienced Commercial Broker or Investment Sales professional who can help guide you in the right direction. It costs you nothing to "employ" them to work for you and you get someone who has done it before. While not always the case, I would try to steer clear of Realtors who bounce between Residential and Commercial. That is just my opinion. Another opinion I have is only talk to them if you are serious about making the purchase. Otherwise, they will not pick up your call when you are serious.

5. Why North Carolina? If you buy a true NNN lease then you can live wherever you want with the tenant maintaining the building.

6. Keep doing your research and starting looking at deals. If you do not have $250k to invest in a single property now that is fine. You can keep saving and start learning how it works. 

Good luck and let me know if I can be a resource in anyway.

Cheers!

Originally posted by @Winston Parks :

@William M. how is your search coming along? There was some solid advice given in previous responses, but I'd like to point out what I think it most important for you to start.

.....

5. Why North Carolina? If you buy a true NNN lease then you can live wherever you want with the tenant maintaining the building.

.......

I tell people all the time, I want to be the 1st REI to own a NNN on the Moon

Originally posted by @Winston Parks :

@William M. how is your search coming along? There was some solid advice given in previous responses, but I'd like to point out what I think it most important for you to start.

1. Know your budget. You will need between $250k to $400k to buy a property between $1M-$2M. You are not going to buy a commercial property with no money down unless you do something strange which will likely spook any Seller.

2. Know how to calulcate the cap rate which is how you evaluate commercial properties. ALWAYS get the lease to understand if there are landlord responsibilities. Higher the cap the higher the risk. Lower the cap the lower the risk. By risk Im talking about credit rating or footprint if they are not a publicly traded company. 

3. Know the difference between NNN and NN and how that will affect your cap rate. Some people only want NNN, but if you are buying a new build with a NN lease with the landlord responsible with structure and roof then should you pass? My anwer to you would be it depends on what your investment strategy is.

4. Find an experienced Commercial Broker or Investment Sales professional who can help guide you in the right direction. It costs you nothing to "employ" them to work for you and you get someone who has done it before. While not always the case, I would try to steer clear of Realtors who bounce between Residential and Commercial. That is just my opinion. Another opinion I have is only talk to them if you are serious about making the purchase. Otherwise, they will not pick up your call when you are serious.

5. Why North Carolina? If you buy a true NNN lease then you can live wherever you want with the tenant maintaining the building.

6. Keep doing your research and starting looking at deals. If you do not have $250k to invest in a single property now that is fine. You can keep saving and start learning how it works. 

Good luck and let me know if I can be a resource in anyway.

Cheers!

Great info Winston!  I'm also a commercial RE investor and found your response to be quite useful.  One question I have:  why would you advise to steer clear from realtor who bounces between residential and commercial?

Thanks

@Vincent Dang
As a former residential agent who went back and forth for a while, I will say that a good agent adds more value to the deal.
Once I decided to make the switch I stayed on the sidelines and learned for two years. It’s a completely different animal.
Now I’m able to help clients navigate the deal process from analysis to negotiations and most importantly the due diligence phase.
I wouldn’t advise an investor to let a residential agent negotiate a deal with a seasoned commercial broker. Many investors pay dearly for lessons but having an experienced knowledgeable agent working on your behalf lessens the likelihood.

I invest solely in commercial NNN (started off that way). I personally like it much better than residential as there is a lot less management overhead and leases are usually for a lot longer, plus cashflow is very predictable due to NNN nature as long as you can keep vacancies in check.

The question on whether you can start off in NNN commercial is solely a matter of your net worth and liquid investable assets. Most people don't start off in NNN because they don't have the capital. There is no way you are going to be able to finance 85% to 100% of the deal. 60-70% is more realistic. And you are not going to be able to get anything decent below $2M (500K down) and your net worth needs to be at least 1M outside of your primary residence or banks will not bother talking to you.

So really it just comes down to a significantly higher barrier of entry compared to residential. If you have the resources I would highly recommend it but if not then it's a waste of your time.

Originally posted by @Jerry Shen :

I invest solely in commercial NNN (started off that way). I personally like it much better than residential as there is a lot less management overhead and leases are usually for a lot longer, plus cashflow is very predictable due to NNN nature as long as you can keep vacancies in check.

The question on whether you can start off in NNN commercial is solely a matter of your net worth and liquid investable assets. Most people don't start off in NNN because they don't have the capital. There is no way you are going to be able to finance 85% to 100% of the deal. 60-70% is more realistic. And you are not going to be able to get anything decent below $2M (500K down) and your net worth needs to be at least 1M outside of your primary residence or banks will not bother talking to you.

So really it just comes down to a significantly higher barrier of entry compared to residential. If you have the resources I would highly recommend it but if not then it's a waste of your time.

 I like your point of not getting any decent deals below $2M.  But what about getting somewhat risky deals below $2M and looking for opportunity to upgrade in a few years after you've built credibility and higher networth?  I plan to do this because I have a very strong and stable W2 income stream where I can stomach the expenses if tenant goes belly up.

Originally posted by @Vincent Dang :
Originally posted by @Jerry Shen:

I invest solely in commercial NNN (started off that way). I personally like it much better than residential as there is a lot less management overhead and leases are usually for a lot longer, plus cashflow is very predictable due to NNN nature as long as you can keep vacancies in check.

The question on whether you can start off in NNN commercial is solely a matter of your net worth and liquid investable assets. Most people don't start off in NNN because they don't have the capital. There is no way you are going to be able to finance 85% to 100% of the deal. 60-70% is more realistic. And you are not going to be able to get anything decent below $2M (500K down) and your net worth needs to be at least 1M outside of your primary residence or banks will not bother talking to you.

So really it just comes down to a significantly higher barrier of entry compared to residential. If you have the resources I would highly recommend it but if not then it's a waste of your time.

 I like your point of not getting any decent deals below $2M.  But what about getting somewhat risky deals below $2M and looking for opportunity to upgrade in a few years after you've built credibility and higher networth?  I plan to do this because I have a very strong and stable W2 income stream where I can stomach the expenses if tenant goes belly up.

 If I were in your shoes I would just do residential. Fanny and Freddy backed loans are almost entirely income based.  If your net worth is low but income is high why would you want to compete with high net worth individuals for deals? You are going to get killed

Originally posted by @Jerry Shen :
Originally posted by @Vincent Dang:
Originally posted by @Jerry Shen:

I invest solely in commercial NNN (started off that way). I personally like it much better than residential as there is a lot less management overhead and leases are usually for a lot longer, plus cashflow is very predictable due to NNN nature as long as you can keep vacancies in check.

The question on whether you can start off in NNN commercial is solely a matter of your net worth and liquid investable assets. Most people don't start off in NNN because they don't have the capital. There is no way you are going to be able to finance 85% to 100% of the deal. 60-70% is more realistic. And you are not going to be able to get anything decent below $2M (500K down) and your net worth needs to be at least 1M outside of your primary residence or banks will not bother talking to you.

So really it just comes down to a significantly higher barrier of entry compared to residential. If you have the resources I would highly recommend it but if not then it's a waste of your time.

 I like your point of not getting any decent deals below $2M.  But what about getting somewhat risky deals below $2M and looking for opportunity to upgrade in a few years after you've built credibility and higher networth?  I plan to do this because I have a very strong and stable W2 income stream where I can stomach the expenses if tenant goes belly up.

 If I were in your shoes I would just do residential. Fanny and Freddy backed loans are almost entirely income based.  If your net worth is low but income is high why would you want to compete with high net worth individuals for deals? You are going to get killed

 Thanks for the suggestion.  Main reason is for long distance property and I want to minimize the headache.  Do you have residential properties in a long-distance location?  How is your experience with the property manager so far?

Originally posted by @Vincent Dang :
Originally posted by @Jerry Shen:
Originally posted by @Vincent Dang:
Originally posted by @Jerry Shen:

I invest solely in commercial NNN (started off that way). I personally like it much better than residential as there is a lot less management overhead and leases are usually for a lot longer, plus cashflow is very predictable due to NNN nature as long as you can keep vacancies in check.

The question on whether you can start off in NNN commercial is solely a matter of your net worth and liquid investable assets. Most people don't start off in NNN because they don't have the capital. There is no way you are going to be able to finance 85% to 100% of the deal. 60-70% is more realistic. And you are not going to be able to get anything decent below $2M (500K down) and your net worth needs to be at least 1M outside of your primary residence or banks will not bother talking to you.

So really it just comes down to a significantly higher barrier of entry compared to residential. If you have the resources I would highly recommend it but if not then it's a waste of your time.

 I like your point of not getting any decent deals below $2M.  But what about getting somewhat risky deals below $2M and looking for opportunity to upgrade in a few years after you've built credibility and higher networth?  I plan to do this because I have a very strong and stable W2 income stream where I can stomach the expenses if tenant goes belly up.

 If I were in your shoes I would just do residential. Fanny and Freddy backed loans are almost entirely income based.  If your net worth is low but income is high why would you want to compete with high net worth individuals for deals? You are going to get killed

 Thanks for the suggestion.  Main reason is for long distance property and I want to minimize the headache.  Do you have residential properties in a long-distance location?  How is your experience with the property manager so far?

 I've been pretty happy with my property management so far. Both my properties are long distance. I don't think commercial is any better than residential for long distance.

@Vincent Dang my experience is that agents who do everything aren't specialized in anything. As @Brant Garner mentioned above, due diligence on a residential property is totally different than residential not to mention the various hurdles in CRE. If you want someone representing you for a $1M+ sale, do you want a friend who bought/sold a few houses or someone who negotiates $1M+ deals every day?