Investing in Texas NNN

[Pete Harper]

I'm a long term buy and hold investor looking to diversify my portfolio. We currently own 38 doors of small multi-family apartments in Central Texas. As we grow our business I'm looking for options to diversify. We started off very hands on doing our own renovation work, we renovated 12 units in the last year anywhere from full gut reno to light reno. We did the self manage thing for a year but I've now turned everything over to a PM. My wife and chief painter, keeps reminding me we are supposed to be retired. With an eye to more hands off investing in the future I wanted to investigate NNN.

I see a number of properties in the $1M-4M price range. Starbucks, McDonalds, General Dollar, Autozone and etc  Most are advertised for a 3.5-4.5% cap rate.  Any advise on large National Brands vs smaller local mom and pop operations. Retail vs Fast Food?  Do you get a percentage of gross?

I hear financing is a little different for NNN compared to small multi-family commercial. Can I use cashflow to qualify for a loan? Typical down payment and terms? Seller financing an option? I have a good relationship with a small local bank willing to do portfolio loans. The only issue is they are only giving me 15-20yr term and that isn't going to cash flow at a 4% cap rate.

How hands off are NNN really?

Any good resources to learn more about NNN? Books, PodCasts, etc.

[Scott E.]

You are throwing a lot out there in this post so I'm going to break it down by question.

1. Retail vs Fast Food - That's personal preference. Choose an asset class and tenant who is in demand today in your sub market, and who is likely to stay in demand for the foreseeable future

2. Do you get a percentage of gross - No. The tenant is going to pay you rent, just like any other tenant. You have nothing to do with their sales.

3. Can you use cashflow to qualify for a loan - Yes. A lender will qualify you based on the cash flow, strength of the tenant, length of the lease, etc. They may want a personal guarantee with a more "mom and pop" type tenant

4. Loan terms - You can do better than 15 to 20 year term. There are plenty of banks out there who will write a 25 year term, that is the industry standard. The deal still will not cash flow though at a 4% cap rate even on a 25 year term. Interest rates have gone up too much.

5. How hands of are NNN really - They are quite hands off. I have only done 2, but they were generally "mailbox money" in my experience. I had to pay the property taxes, HOA, and insurance on my own (which the tenant reimbursed). But the tenant handled everything else.

6. Good resources to learn more about NNN - Right here. There are some very experienced NNN posters on here. I'm some of them will follow my response.