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Triple Net Leased (NNN) Commercial Properties
Management-Free and Headache-Free Ownership
How this does owning NNN Properties differ from owning other investment
real estate?
Unlike owning duplexes, apartments, land or an office building, owning a
commercial property under a Triple Net Lease Agreement to a business
tenant is a passive investment --- management and headache free! In other
real estate investments such as rental houses, mini-storage facilities,
apartments and office buildings you as the property owner must perform the
property management duties and pay all operating expenses. You rent the
property, collect the rents, refurbish the premises, pay the property
taxes, insurance premiums, maintenance, accounting, legal, and other
operating expenses. Whereas, under a Triple Net Lease arrangement the
Tenant agrees to perform all these functions for you as the owner of the
property in return for a long-term Lease Agreement.
With the ownership of commercial property under a Triple Net Lease
arrangement, the Tenant operates his business and pays all expenses (tax,
insurance, maintenance) in that location for the duration of the Lease
Agreement. This type of real estate investment is passive, similar to
owning stock in General Electric. And you receive the dividends or, in
this case the rent payments, monthly. Further, these types of commercial
Tenants are positive business renters. Unlike apartment renters who tend
to abuse the property and then move out leaving the owner to refurbish and
to find new renters, commercial Tenants have a vested business interest in
seeing that a location is well maintained and attractive to customers.
How do these properties become available?
Many large corporations prefer to lease rather than own their buildings
for two reasons: They can only depreciate the cost of the building over 39
years and it remains as a long-term debt on their books. The monthly Lease
payment is written off as an annual business expense on their tax return.
Therefore they often choose a prime business location and have a building
custom built in their normal architectural design (Taco Bell, KFC, Circuit
City, etc. ). They then sell that building with a long-term Lease in
place. Very often the builder will retain ownership of the land and
building and sell it in the second year of the Lease for long-term Capital
Gain. Or owners of these properties may want to cash out for various
reasons --- estate settlements, a need for cash or for a Tax-Free
Exchange. Also large Real Estate Investment Trusts (REIT's) with hundreds
of thousands of dollars available from their investors will buy a whole
chain of Net Leased properties, hold them for a short time and then "flip"
them for a higher price. The properties are listed with various large
brokerages around the country that specialize in Triple-Net Leased
properties. They in turn to make them available to commercial brokers
throughout the U.S. such as Commercial Investment Associates, who then
contact investor/clients in their area.
What are some examples of Commercial Triple-Net Leased properties?
The drugstore chains such as Walgreens, Eckhard's, CBS, Rite-Aid.
Restaurants and fast food chains such as Arby's, O'Charley’s, Applebee's,
Shoney's, KFC, Burger King, Chili's, Jack-in-the-Box, Mrs. Winners,
Captain D's., Buffalo Wild Wings. Other examples are Dollar General,
Wal-Mart, Verizon Wireless, Hi-Fi Buys, Circuit City, Auto Zone,
Blockbuster Video, IHOP, Office Depot, OfficeMax, Home Depot, Staples,
Kmart, Payless ShoeSource. They have all been available to investors in
the past year.
What are some of the advantages of a Triple Net property?
There are several advantages.
First, the monthly Lease arrangement provides a very predictable,
long-term income stream to the property owner.
Second, since there are no property expenses (taxes, maintenance, or
insurance) to be deducted, the income stream is not impacted by future
increases in property operating expenses.
Subject to the credit worthiness of the Tenant and the terms and
conditions of the Lease agreement, the investor can enjoy a high degree of
security and should have additional rental income over time as the
inflation hedge features of the Lease Agreement comes into play.
Can a Triple Net property be used to complete a Real Estate Exchange?
Yes.
A Triple Net Leased property can be an excellent replacement
property in completing an Exchange transaction. Many real estate investors
dispose of their management-intensive properties such as rental houses,
apartment buildings, duplexes, and office buildings, hoping to find
management-free properties producing long-term, predictable income. If you
are thinking of disposing of your business or investment-held property,
would like to pay no capital gains tax and reinvest into a management and
headache-free property, the purchase of a Triple Net Leased property
through a Real Estate Exchange can be just right for your investment
portfolio.
What about financing?
Most investors will purchase a Net Leased property by leveraging their
cash outlay --- putting twenty percent down and obtaining an eighty
percent long-term bank loan (15 to 20 years). Because of the financial
standing of the credit tenant, these loans are usually obtained at a more
favorable interest rate and a lower down payment than with other types of
business loans. This allows the investor to acquire the property with
fewer dollars up front.
What sort of percentage return could I expect from a Net Leased
property?
You calculate your return on your cash down payment in two ways:
1) Your cash balance after you have received your monthly rent check and
paid your monthly note payment. This will usually be 7 to 10 percent (or
more) on an annual basis of your cash down payment and will depend on the
"Cap Rate", the percentage of rent received annually divided by the price
paid for the property. Most Cap Rates on properties we would recommend are
currently running between 7.25% and 8.5%
2) Your monthly equity buildup on your mortgage payment (The "principal"
part of the interest and principal). This should also be another 7 to 10
percent (or more) of your cash down payment. Adding the two together, your
total annual return typically will be fourteen to twenty (or more) percent
on your cash down payment starting your first year and increasing steadily
year by year as the interest portion of your note decreases and your
tenant’s scheduled rent increases come into play. By about the tenth year
it may be 25% to 30% of your down payment. By year 15 it could be as much
as a 40% return!
Can Commercial Investment Associates find Triple Net properties in any
area?
Yes.
Although most Nashville area investors prefer properties which
are not more than two to three hours driving time from their home, we have
recourse to a wide range of properties at varying prices (starting at @
$350,000) in all areas of the United States.
What is the procedure when I choose a property I would like to buy?
First we submit a Letter of Intent to the seller's agent. This document is
not legally binding on either the buyer or the seller. It simply states
the price you are willing to offer for the property and contains the
following conditions: 1) Your inspection and approval of the property. 2)
Your inspection and approval of the Lease. 3) Your ability to obtain a
satisfactory financing. There is no Earnest Money deposit required.
Do I need to inspect the property first?
No.
Since desirable Triple Net properties are normally in short
supply and usually on the market a very short time (sometimes only a few
days) many investors submit a Letter of Intent as soon as they know there
is a property they would like to acquire. Upon acceptance of their offer
they will have a thirty day period to inspect and then accept or reject
the property.
What is the next step if we agree on the selling price?
You will then sign a Purchase and Sales Agreement and forward it to the
seller with your Earnest Money deposit. This agreement is legally binding
on both parties and will include the conditions listed in the Letter of
Intent. You will have thirty days or more after the seller signs the
agreement to inspect the property and to obtain a loan commitment. A copy
of the Lease will be furnished so that you may review it with your legal
counsel. If after your inspection period you do not choose to purchase the
property you will so notify the seller. You are not obligated to give any
reason for your withdrawal. Your Earnest Money will be returned and you
will have no further obligation.
What is the final step if the price is right, I like the property, the
Lease and the conditions?
As with any real estate transaction you will then go to closing, usually
thirty days or less after your inspection period. The escrow and closing
may possibly be in a city other than that in which your new property is
located. Your attorney can obtain the closing papers for your signature by
mail or fax and funds will be transferred by wire. The current month’s
rent check will be prorated and credited to your account. After that you
will receive your monthly rent check directly from your Tenant.
Reprinted from: THE ARMCHAIR REAL ESTATE MILLIONAIRE,
by HANK LEVINE
To obtain an accurate assessment of any data you're
receiving online,
property analysis, market conditions or to discuss
problem properties . . .
Why not call me today
?
TOM ANDROS
Direct:
909 985-4898
| 800 403-1139
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