Buying Restaurant / LazyDog property as a first timer

[Dan Cooper]

Hello all -

I have been thinking of getting into realestate investment for a while with a goal of generating income stream (today my only income Is through my job - I make decently as a senior exec). 

I'm planning to move what I have in stock market ($2.5-3Mil) to buy a good realestate. I came across this brand new property, in a great intersection that's leased out to LazyDog restaurant & running well. Property is $6.5M, leased for 20 year corp-guaranteed with a current rent of $450K (10% increase every 5 year). I ran the numbers and looks like a good deal (7% cap rate, 5% ROI, and ROI will improve as the years go by). Moreover, thE Property is in a great intersection in a major metro (household avg income of $200k).
What is the downside/risk here? One risk I could think of is - Even witb a 20 year guaranteed lease, thr company could bankrupt & may put me in a situation to look for a tenant. And, that could take a good 6-12 month given the type of Property (large restaurant). Anything else?

[Tim Delaney]

The restaurant going under is definitely the biggest risk. And it could take even longer than 6-12 months to find a replacement depending on the area.

The other things to look at carefully are major Capex or maintenance expenses - you didn't mention whether this was a NNN lease. If it's not then maintenance can easily eat away at your returns. Even if it is NNN, are their certain Capex items that you are responsible for? Not sure on the building size or whether it has a flat roof, but I paid over $80K to get a 10k sq ft flat roof done back in 2021, with quotes as hight as $120K.

Hope this helps, good luck!