All Forum Posts by: Joel Owens

Are you doing a 1031 exchange?

Purchasing all cash or using debt?

No way would I do such a deal. Those properties have very little value with sheet metal sides and back often on well systems in rural areas. They have almost zero value when they go dark.

Example if I bought some run down DG with high cap rate all cash for 1.2 million but came with amazing dirt in strong location then I would just demo the building if they left and raise rent with another tenant with ground lease, build to suit, etc.

DG typically have flat rent. Most Walgreens now have some rental increases in primary term. If the 700k is a huge portion of your net worth would not buy NNN something small like that. It's a classic mistake I see investors make. They want to start small thinking that is less risky when it is MORE risky because the location is bad, the quality of construction is bad, etc.

I have been in NNN space for decades.

Your buying yourself a full time job you won't like and the returns you think you are projecting will get eaten by capex and tenant turns with damage.

In commercial real estate now but 20 years in real estate. Good luck.

Just remember this.

Those syndicators new to the business tend to ( LIVE OFF THE FEES ). They have to churn and burn buying properties to keep paying themselves and employees as they are not working that J-O-B anymore.

People that are successful in the industry for decades already have a lot of knowledge and wealth. That helps minimize downside risk and increase upside potential for returns. The ones already wealthy could retire today but they would get bored. They do not want to invest in minimal projects to live off the fees. They also do not want problems in future years.

In my industry brokers and agents not wealthy tend to want to sell ANYTHING to ANYONE because they live deal to deal. Working with a broker or agent already wealthy they tend to tell you what they really think because they do not need the deal to happen to survive and thrive.

As an example I just live off my wealth and never work another day ever but I still enjoy helping people and my business I just pick and choose when I want to do it.

There are some BP books on here for syndication and other similar things. Read up on those. Good luck.  

Jennifer you need a VISION and a PLAN. Then break the PLAN down into phases. Create a chart where earned active income slowly converts over to real estate income over years and decades. At first you will have a level of active income with real estate. As you scale with systems the load will likely become less over time.

Eventually most investors move to NNN properties single tenant with investment grade tenants and become completely passive ( couple hours a year updating financials to bank and passing along tax bill for tenants to pay etc. ). Some start out there if they have large amount to invest at a time ( millions down ). Others build up to eventual estate planning older in retirement to convert assets.

As you get older you cherish every second of that additional time to enjoy life more. When I was younger in my 20's I wanted to rule the world not thinking about time. 48 now and I have lost some friends, family, etc. along the way and your body feels different as you age and realize time comes for everyone no matter 1 dollar net worth or 1 billion. You can have more help with more money sometimes but it also has it's limits. We spent thousands trying to save our 15 year old lap cat and it was just his time nothing we could do. My 80 year old mom I try to keep her as good as possible and help out when I can.

If you are an accredited investor you could also invest in small slices in syndications. There are also syndications where you can invest as non-accredited but have to be very careful with those agreements. Often those syndicators know they are not dealing with sophisticated and accredited investors so try to take advantage of them.

Right now your money doesn't have to go immediately into something. You need to take more time with the research, planning phase, and think about life goals instead of buying something and figuring out later it's not an ideal fit. Then you have to do all this work trying to get out of it.

I see all life cycles and ages of investing. Typically those that come to me have tens of millions to hundreds of millions so you see their investing trajectory over many decades of time. I always laugh when people bombard investors asking what they should do when they know nothing about their individual goals and situation. I feel like brokers and agents should get to know a person and investor FIRST, see if they both are a fit long term, and then work on the PLAN with upfront groundwork before putting things into action.

Existing personal blogs are archived right for SEO and not deleted out? I wrote a few years back. 

WALT = Weighted Average Lease Term.

I have been in retail about 20 years now and know it well. People not in it think assumptions and theory when I know reality.

Mom and pop tenants can move quicker for a retail center in a span of 3 months or more BUT they are also the ones under capitalized and often have limited system and processes and work mainly as owner operators of the business. They often fail to re-invest in the business with technology and re-imaging the space. They have small business loans, HELOC on house etc. These are the businesses with a 5 or 10 year lease in a retail center a certain percentage of them do not survive the lease. The property manager is also key with these small tenants as they need lots of hand holding and reassuring to keep them on track and performing.

The regional to national tenants take a MUCH LONGER time to commit to a space. They move slowly and methodically and look at multiple centers and sites in an area and grade the sites by tiers. They then play landlords against each other seeing who will give them the sweetest deal for the strongest locations. When someone owns hundreds or thousands of locations they operate they become a professional negotiator with landlords. They know moving slow in the beginning to extract all they can is more of a win then going fast into a location to open sooner.

An exception to this is an A plus location where a dozen tenants want the space. Then as a landlord I can put out MY terms to lease and the ones that do not comply can go pound sand.

You really need to look at the other smaller retail centers in the area, their tenant mix, their parcel size, their traffic counts, their back anchors, their site lines, their ease of access with turn in and turn out lanes, if tenants all have peak business for the day and same time and parking lot overcrowded, etc.

Some owners will hold the paper at below market interest rates and you get a 30 year amort with a 5 year balloon. When rates hopefully go down you refi.

Letting tenants do build out sometimes works out and other times does not. The tenant might do really shoddy work and never open and you have to rip it all out plus the contractors that did do the work file liens on the owners property. So you have to spell out very clearly in the lease with build out and construction timelines what metrics the tenant is responsible for.

No way I would put down 2.5 million for a 4.5% cash on cash with an older multi-tenant retail building. The upside to the new lease rents if tenants left would have to be double plus to even consider it.

Only 1031 buyers might take those yields and then they want single tenant. If I can get the same yield or better with investment grade tenant where I do nothing then I sure do not want to take care of 5 or 10 tenant with a range of investment grade, to regional, to mom and pop tenants.  

I have 4 main client types right now.

1. Those that are 1031 exchange and not yield driven

2. Those that are tax savings driven. ( Example mitigating 1 million in taxes owed for 2022 and buying gas station for bonus depreciation.)

3. Those that buy now and just want to convert active income from job or business to single tenant NNN and 5% return is fine for them they already make millions to tens of millions per year.

4. Those that are YIELD driven floating 5% annually in bank sitting on tens or hundreds of millions wanting to time the next downcycle to 2X minimum on next uplift.

It's all about your age. What life you want. What passive income level you are happy to stay at etc. 

Labor and material costs vary by state and region. Areas that are more small suburban to rural tend to be more expensive as more limited contractors and trades in the area with lots of local demand. So not a bunch to choose from competing for services.

If this property is local to the state you live then would ask other investors what their costs ran. If not local to the area then we generally talk to 3 leasing and management type companies local to the site and they have averages in cost and turnover times to completion.

K-mart, Rite-Aid, Sears no credit to junk credit.

My clients buy BBB- or better Standard and Poors rated investment grade credit. Very, very low default rates over 50 year spans.

I would take a strong credit tenant with predictable yield over lots of small tenants where some will go out over time. Once you model out TI, leasing commissions, attorney fees unless there is massive upside rents to new tenant and stronger tenant it's a lot of work for nothing.

TI varies based on what you are doing with the space. There are not set rules and hard numbers it's all situational to the tenant and the area.

Example a dark coffee shop where another chain coming into the space might require 10 a foot to convert. On the other hand a medical tenant might want the space and takes 50 a foot.

If I have Starbucks coming in I know they will be there and pay the rent over term of the lease. If I have one operator unit tenant or small franchisee they may not last so I would be more careful about upfront leasing commissions and TI being paid. Again it's all situational and comes with experience dealing with those assets day in and day out.

Building from 1976 would pay attention to the roof and when last redone. if gravel has to be sucked off the labor can get very expensive.