Everything You need to Know About Triple Net Lease (NNN Lease) and Commercial Real Estate Investment 

Appreciate that!

It’s because surface level, short clip, Clickbait is more attractive than educational videos, such as these.

Appreciate that!

We appreciate the positive feedback. Please don't hesitate to reach out!

I'm still learning as well, however, I do understand question #3 because I follow publicly traded companies, one reason for a company to sell their property and lease it back is to raise capital, it's a way to extract the equity in the property and either pay down some debt to keep themselves afloat or to use the money for Capital Expenditures, investing in the growth of the company. Hope this is helpful

Great question! Yes, it’s true that financing a NNN investment reduces the total net cash flow because you have to pay the mortgage interest and also pay down the principal balance out of the net operating income (NOI). However, aside from the fact that many investors don’t have enough liquidity to pay all cash, savvy investors typically look at “cash-on-cash” rather than just NOI and cap rates when measuring return on investment. Let’s say you acquire an investment property valued at $1 million with a cap rate of 8%. In this scenario, the NOI is $80,000 ($1M x 8%). If you pay all cash, there’s no debt service, so the cap rate and the cash-on-cash are the same. However, if you use financing, depending on the interest rate and how much money you put down, it’s actually possible to increase the cash-on-cash and your ROI. For example, if you put 50% down ($500,000) and got a loan with a 7.5% interest rate, you’d be paying $41,953 annually for principal and interest, which gives you an annual “Cash-Throw-off” (CTO) of $38,047 ($80,000 NOI minus $41,953 debt service) and a cash-on-cash return of 7.6% ($38,047 CTO/$500,000 down payment). So, since the cash-on-cash (7.6%) is less than the cap rate (8%) it might make sense to pay all cash if you can, particularly if your primary objective is to maximize cash flow. However, if you got a 7% loan, the annual debt service is $39,918, the CTO is $40,082 and the cash-on-cash is 8% ($40,082 CTO/$500,000 down payment), which is equal to the cap rate. Obviously, the lower the interest rate, the more CTO and the greater the cash-on-cash ROI. For example, in this scenario, a 6.5% mortgage translates to 8.4% cash-on-cash and a 6% mortgage results in an 8.8% ROI. Now, if you can increase your ROI by putting less down, you have the option to invest your additional cash in another investment to build your portfolio. Plus, by leveraging the $1M investment, you can dramatically boost your total ROI from price appreciation during the holding period. In other words, if you pay all cash and the investment goes up $100,000, you’ve made 10% ($100,000/$1,000,000). However, if you only put $500,000 down, the same rate of price appreciation now translates to a 20% return ($100,000/$500,000). Similarly, your after-tax ROI from the tax shelter created by the mortgage interest and physical depreciation deductions are also multiplied by the leverage created with financing. Still have questions? Give me a call - I’d love to hear from you!

Hi Tony - thanks for your interest in our video and your question on NNN leases! In a true "Triple Net" lease the tenant is responsible for ALL expenses related to the property. In this scenario the seller has NO responsibilities. It's mail-box money. Although not a responsibility, some prudent owners will pay for an annual property/building inspection to confirm that the tenant is performing in good faith on their contractual responsibilities to properly maintain the property.

@@leeabraham9414 Thank you Lee, very helpful

There is a difference of a NNN lease and an Absolute NNN Lease which is a "Hell or high-water lease" There is a difference.

​@@PlayedTV interesting, thank you, I'll do some reading on the "Absolute NNN Lease"

Thank you very much for watching our video and asking about NNN investments! Your first step is get in touch with a commercial lender to evaluate your financing options. Regarding any given NNN investment opportunity, the initial filter is evaluating ROI, typically as a Cap Rate %. Here's 2 recent videos that will give you a good introduction to Cap Rates: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-7oZkarvj8QM.htmlsi=8f1d4wn-JPQm9DSY ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-bavrWGCxyR8.htmlsi=W67hS4_vJTpR5bXO If the Cap Rate meets your criteria, then digging into the lease terms, the tenant's financial strength, property location, building/structure condition and underlying site value are key variables that need to be analyzed in order to make smart choices and avoid costly mistakes. Feel free to get in touch with us to discuss the specifics of the lending process or the commercial properties you are considering.

Your concept of the value is accurate, it's based on the lease because commercial properties are valued based on their income. So the value increases or decreases depending on the income (assuming market conditions are constant). If it's vacant and has 0 rent the value will drop, if the rental rate goes up then the property increases in value. In your theoretical example, if there are 12 years left on the lease term then someone would pay the higher price of $3M. If there is very little time left on the lease, or it's not leased, then that same property will sell at a discount because the buyer is taking on the lease-up risk. An experienced buyer who is familiar with the market could see that as a good deal because they know the rate they can lease it for and how long it will take to find a tenant; and that with the tenant in place they will increase the value significantly. Where as another buyer wants the security of a 5% return without the risk the property sits vacant or leases for a lower rate than they projected.

We love the DG concept and corporate strength but it appears that their aggressive growth strategy has created an oversupply of available assets. Plus, very few offer rate bumps during the initial term which dampens ROI and limits appeal to inflation sensitive investors. Are you thinking of acquiring one or more DG's?

@@leeabraham9414 Thanks for the response. I've been looking at a few DGs that are for sale. Seems like an approachable NNN investment to get started with but my research has created a bit of concern with their corporate side.

Local or regional banks. It takes some calling around and asking if they fund the type of deal you're looking to do. Then building a relationship with them. They often want you to move deposits to their bank as well.