NNN - Commercial Real Estate Investing

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Hello,

I am a huge fan of these BP forums and have learned so much! I feel like I am in the "analysis paralysis" stage though as I have been studying real estate investing for over 5 years now.

I first was interested in duplexes, fourplexes, etc...but this past year have become more interested in CRE as my first investment. After some mentorship from a current NNN Jack-in-the-Box owner, I see it as a great investment.

So my question. As someones first NNN real estate investment, is it better to go for a high cap rate, low cost, low lease years remaining property, that has great financials and will most likely renew in a few years....OR invest in a higher price, lower cap rate, long lease in place (where the lease will pay for the purchase price)?

EX:

1 - Starbucks: great corner location, drive-thru, 2008 build, lease expires in 4 years (2018), $625k price with 9% cap rate.

2 - Long John Silvers: ok location (off freeway, mall and Walmart outparcel), older 1980 build, 20 year lease, $1.3 million purchase price with a 7% cap.

-So my question is....should the lease MINIMALLY pay for the property (as the Long John Silvers would, plus some depending on my loan/downpayment)... OR is a short lease ok if the stores financials are solid and the high cap rate will mean a short breakeven (as the Starbucks would be paid off in 11 years at that cap rate).

I really appreciate any beginners advice on selecting my first NNN property. Thanks!

[Mark Creason]

Choosing is a matter of risk.  The Starbucks will be hard to finance because of the short remaining lease term and the relatively low purchase price.  You will most likely be looking at a recourse loan and probably a 4 year term.

On the Long John Silvers, do you know if they are credit rated?  Restaurants are not popular with lenders because so many fail.  Is the store a franchisee or corporate guarantor?  LJS used to be part of Yum brands, but I believe they were taken private by their franchisees.  

I believe if you are going to buy NNN properties, I would be looking for long leases with good corporate guaranteed leases.

Mark