NNN Lease can I be the landlord and tenent both?

Question

Hi everyone, I would like to buy a property, build for NNN lease but run the tenent business the sametime. I don't know if someone here has done something like that. What are the pros and cons?

For example, if I have bought a piece of property. And I would like to own a Dunkin Donuts and maybe DQ as stand alone building. and build a strip center and own franchises on UPS store, Anytime Fitness and a smoothie store etc.

This way I am NNN leasing myself. how is that possible?

I try to do this with around 10M cash.

Karen Schimpf · Answer

@Michael Huang  in the finance world this is called an owner occupied deal if you occupy 51% of the commercial real estate.  Many business owner's rent from, what we call in the lending industry, "holding companies". The advantages of the owner occupied is that it allows higher loan to value up to 85% as long as the business can globally DSR 1.25 or better. You will need to provide 3 years of the seller's financials, business tax returns and interim financials to your lender.   Another advantage is the rates are typically better than an investor deal on this asset class.

The disadvantage of the owner occupied deal is that the lender will do a global debt service.  Calculating a global debt service means you will also need to provide your tax returns on your personal and all businesses that you own.  The global DSR calculation will include all your personal and business income and all your personal and business's debt.

Steven Gesis · Answer

Yes of course you can do all this

Charlie MacPherson · Answer

@Michael Huang  Be sure you vet the entities you're talking about.   What caught my attention is The UPS Store.

I used to own a competitive business in MA.  It wasn't a franchise, but did the same kinds of things - pack & ship, rent mailboxes, make copies, etc.

There was a UPS Store about 0.2 miles from me, which went out of business 3 times in the 11 years I owned mine.  It finally closed for good.

Shop talk in the business was that there were large lawsuits by franchisees against UPS and that 2 out of 3 stores across the country were losing money.

Look at www.UnhappyFranchisee.comto see what people are saying.  I've been out of the business for 4 years now, maybe things have miraculously improved.

Ronald Rohde · Answer

Yes, you can certainly own and control entities that serve as LL and Tenant. The use of LLCs or alter egos, is what allows this. For practical purposes, if you held both the land and use in your personal name, your tax results would be the same. But with LLCs, you can segregate costs, reduce taxable income and achieve your goals. If you need a Florida attorney, happy to assist.

Joel Owens · Answer

To own the business I look for 20% plus profit margins.

If the business is throwing off 10% then I forget it because I can get that passively owning the center and having tenants run the businesses and pay me the rent.

Jason Carter · Answer

I think this is possible. Just saw a strip center for sale where the seller of the center also owned the coffee shop in the center. It wasn't a chain coffee shop though. Not sure if the chains have rules against their franchisees owning the building or not.