What is true NOI while investing in NNN property? How to calculate COC for NNN property?

@Ken Thakar if the property is truly NNN meaning the owner is not responsible for any costs, your NOI is whatever annual lease payment the tenant is paying you. Most NNN properties I get sent say that right in the offering memorandum. So for instance a dollar store being offered for $1,000,000 at a 6 cap NNN is paying $60k per year.

Your COC return depends on how much of that money your borrow. If you put down $1,000,000 cash then your COC return is exactly the same as your cap rate, 6%.

What if you borrow 75% of the price for 20 years at 5% and put down $250k? Well then your monthly mortgage payment is $4950 and you get a rent payment of $5000 ($60k/12) so you cashflow $50 a month or $600/year.

Your COC return on that is $600/$250,000 or .2 %.

@Ken Thakar if your a newbie I would recommend against buying commercial with NNN leases. While NNN are great as an owner, there are things to consider

Below is a link to a good article about NNN leases

https://www.propertymetrics.com/blog/2015/02/19/nnn-triple-net-lease/

Originally posted by @Jeff Kehl :

@Ken Thakar if the property is truly NNN meaning the owner is not responsible for any costs, your NOI is whatever annual lease payment the tenant is paying you. Most NNN properties I get sent say that right in the offering memorandum. So for instance a dollar store being offered for $1,000,000 at a 6 cap NNN is paying $60k per year.

Your COC return depends on how much of that money your borrow. If you put down $1,000,000 cash then your COC return is exactly the same as your cap rate, 6%.

What if you borrow 75% of the price for 20 years at 5% and put down $250k? Well then your monthly mortgage payment is $4950 and you get a rent payment of $5000 ($60k/12) so you cashflow $50 a month or $600/year.

Your COC return on that is $600/$250,000 or .2 %.

Jeff -

That was really good explanation. Thanks for the brief reply.

Best Regards,

Kenny

Originally posted by @Chris Seveney :

Ken Thakar if your a newbie I would recommend against buying commercial with NNN leases. While NNN are great as an owner, there are things to consider

Below is a link to a good article about NNN leases

https://www.propertymetrics.com/blog/2015/02/19/nnn-triple-net-lease/

Chris -

Thanks for the article. It was a good read. Understood a lot from the article.

Best Regards,

Kenny

Apart from NNN leases being a little bit mor complex, there is also the fact that commercial properties in general require a LOT of cash. Unless you're buying an absolute net ground lease where Wendy's has 15 years left on their primary period, you're gonna need a lot of cash. If you have a 3 or 4 tenant building all with NNN leases, it seems great because they pay all related expenses, but there are other things to consider. Tenant Improvement Allowance (TIA) which can be $10-$30/foot upon signing a lease, brokers fees another 6%, a failed business goes bankrupt and leaves you vacant and after 6 months you find a tenant but guess what, there's more TIA and more brokers fees.

I kind of see commercial properties as a giant furnace of money. If you keep shoveling in coal(dollars) it will produce ALOT of heat and keep you very warm, but when you neglect it or can no longer afford to give it coal, its gonna seize up and die. It's a whole different game.

Best of luck.