Thinking about NNN investment with 1,5 million on cash

Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes

3y

Happy to help as I own several NNN properties. It's a tough time to invest in NNN because the cap rates are still low compared to the interest rates. The pros are the obvious such as depreciation (unless it's an absolute), step up in basis, cash flow, LONG term appreciation, and it's passive. The downside is that if your tenant leaves (assuming single tenant) it's a bear to release even if it's a good location. It could be vacant for a few years and you might have to spend money on leasing and tenant improvements. The best cash flow I've seen out there that is passive are mortgage notes (10-14%), but if you are gung ho on owning real estate with 1.5 million then I would invest in a drive thru Starbucks/dunkin in a smaller town to meet your price point, but your not going to like the cap rate of about 5-5.5%. The good news with owning a drive thru is that it can be easier to lease out than your traditional larger building.

1 Reply

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

3y

@Kostas Gkitzias I have a very good broker connection in Indiana for a guy who focuses on these types of deals. I can send you his info. Personally, I would buy something in Indiana partially because the taxes are constitutionally capped for commercial at 2% which allows you to easily underwrite a triple net deal.

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Brock Mogensen

Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes

3y

I think if your goal is to be an active (but more passive) investor, long term NNN deals make a lot of sense. Finding an apartment deal that provides a good return in the Chicago area likely will be in a C-class area, and that is very management intensive. A 10+ year NNN industrial deal would be your better option. Our firm is very bullish on the industrial asset class in the greater Milwaukee area. Main thing is you want to confirm the tenant is strong, no major cap-ex (or if there is, account for it in your numbers), good debt terms, and a solid broker to help with lease-up should it go vacant.

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Kristi KandelPro Member

Developer · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes

3y

Quote from @Brock Mogensen:

I think if your goal is to be an active (but more passive) investor, long term NNN deals make a lot of sense. Finding an apartment deal that provides a good return in the Chicago area likely will be in a C-class area, and that is very management intensive. A 10+ year NNN industrial deal would be your better option. Our firm is very bullish on the industrial asset class in the greater Milwaukee area. Main thing is you want to confirm the tenant is strong, no major cap-ex (or if there is, account for it in your numbers), good debt terms, and a solid broker to help with lease-up should it go vacant.

100% on the thought process for type of NNN product and the tenant. I'd agree on "light" industrial as those units can be fairly easily turned over to another tenant. Getting connected with the right broker in the market you want to invest in is key. Make sure they are the expert in that type of product. It will help you structure the deal properly and prepare you for future Tenant leases.

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Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

3y

NNN leases sound like the whley grail on the surface, but there are some issues to consider. As long as you are rented things are great, but vacancies are very different, because it can take a long time AND a substantial amount of money to bring a new tenant on board. For that reason alone I would not feel comfortable to put all my money in one deal; do some simple what-if math and decide what the maximum percentage should be tied up in one property.

Another idear to research is DSTs - Delaware Statutory Trusts, you can 1031. Or frankly, the stock market.

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Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

3y

another question is single tenant vs multi tenant. Multi is going to be a lot more work

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Jenna W.

Rental Property Investor · FL · Member since 2019 · 34 posts · 4 votes

2y

Its me, DealershipHRFails on Reddit - I was the one who sent that comprehensive list - here's my new fiverr

https://www.fiverr.com/optimisticjenna

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

2y

Interest rates on credit tenants are 7 percent plus now. NNN 3 million and below about 70% pay all CASH. They get 5% floating annually in the bank staying liquid so tend to jump in and pay 5.5 to 6 caps all day long for strong tenants and locations.

There can be some higher cap rate low credit quality tenant deals but if you do not know what you are doing you can lose your ***. Sounds like overseas properties so no 1031 exchange. Are you a full citizen here? If not it will be very difficult getting a loan even with a strong NNN investment grade tenant. At a minimum want a visa but most require citizenship. You can buy stuff for 1.5 million cash but mainly crap dollar generals with sheet metal sides and back in weak areas. It's credit grade but the land generally has very little value or the building itself so just buying a fixed income stream.

You need to define what your cash on cash expectations are with such an investment. You can't compare apartment buildings with NNN one is active and one is passive with the right lease, location, and tenant.

Most of my clients are buying single tenant right now because of a 1031 exchange or they want bonus depreciation tax benefits etc.

The question becomes why own a weaker asset 100% yourself when you could possibly invest in syndications with NNN ( small slice of a Wal-mart ownership ) for instance that you could not buy 10 million in price on your own. There are also value add syndications like mine where we take vacant outparcels, hard corners not cleared, dark buildings paying rent or not and re-stabilize them over a 3 year hold.

All kinds of options.

Good luck. I have been doing NNN about 20 years now.

Podcast Guest on Show #47

NNN Invest53 Reviews

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David ShortPro Member

Flipper/Rehabber · Fishers, IN · Member since 2014 · 71 posts · 47 votes

2y

I have a coworking/ event space in Indianapolis that I’m looking for a passive investor. Cash flow is excellent but I need to payoff some investors. Great building. I’m a very seasoned investor in Indianapolis and very interested in creating a win/win opportunity. Dave Short

Podcast Guest on Show #174

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Kristi KandelPro Member

Developer · Fort Myers Beach, FL · Member since 2018 · 383 posts · 195 votes

2y

Quote from @Kostas Gkitzias:

Hello everyone, first time posting here. I will liquify some real estate investments i have abroad and i am expecting around 1,5 million dollars to be on my hands. I want to make an investment that is as safe as possible and give me a decent cashflow. I was thinking about purchasing a couple of apartments/single family homes in the area of Chicago but the idea of being a landlord again is not very appealing. My other plan was to purchase an absolute NNN deal of 15+ years remaining of contract (probably out of state) and pray for the best. Even though i was born in the US, i have been living my whole life abroad so I do not have a really good idea of the market, besides all that i have been studying lately. I would like to hear your advices, stories and what kind of due dilligence you people do before buying NNN investments. Also pros and cons would be highly appreciated.

I will be moving to Indiana, if that matters, and most of the deals i find on Crexi are out of state.

Thanks in advance,

Kostas

In general, the NNN deals have lower returns as the risk to the owner is greatly mitigated. If you have a high credit Tenant on a NNN lease and a very low risk investing profile it's a great tool. It all depends on where you're at in your wealth and freedom building journey and what your current and longer term goals are.

1 Reply

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

2y

You can get better returns, with less risk than a single-tenant NNN (everyone thought pharmacies were safe two years ago), just using termed financial instruments (bonds, cd's, money markets). Why not park your money there for a year or two until this market instability passes?

1 Reply

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

2y

Quote from @Mark H. Porter:

You can get better returns, with less risk than a single-tenant NNN (everyone thought pharmacies were safe two years ago), just using termed financial instruments (bonds, cd's, money markets). Why not park your money there for a year or two until this market instability passes?

Sitting on the sidelines intentionally will lose opportunities. People said that in 2020, 2021, you need to be underwriting and submitting offers every day

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Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

2y

Quote from @Ronald Rohde:

Quote from @Mark H. Porter:

You can get better returns, with less risk than a single-tenant NNN (everyone thought pharmacies were safe two years ago), just using termed financial instruments (bonds, cd's, money markets). Why not park your money there for a year or two until this market instability passes?

Sitting on the sidelines intentionally will lose opportunities. People said that in 2020, 2021, you need to be underwriting and submitting offers every day

Right now there are so few opportunities because the prices haven't corrected for the cost of capital. They will, they just haven't yet. The time will come shortly when cash will be king. We'll want to be the predator, not the prey.

Should we put everything on hold - no. You certainly can find the very rare examples that have numbers that work. I bought a vacant building last month that luckily recently signed national tenant to a decade lease. You must admit this happens rarely and I was taking a huge risk.

Will we ever see rates in the sub-6% again, I doubt it. As we've seen, it's just not needed to motivate purchasing. The biggest risk I see, when combined with these things I've mentioned, is the inevitable income tax changes that will have to happen to pay down this nut that's grown over the last couple of years along with social security and medicare solvency. This all puts the safest place for money, and luckily with a comparable return and less risk, in short-term securities.

1 Reply

Joe Yobaccio

Real Estate Agent · Pasadena, CA · Member since 2015 · 93 posts · 12 votes

2y

@john mc

@John M. I had RPL notes at a 15% yield in 2017. Where are you now finding thise?

1 Reply

Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

2y

Quote from @Mark H. Porter:

Quote from @Ronald Rohde:

Quote from @Mark H. Porter:

You can get better returns, with less risk than a single-tenant NNN (everyone thought pharmacies were safe two years ago), just using termed financial instruments (bonds, cd's, money markets). Why not park your money there for a year or two until this market instability passes?

Sitting on the sidelines intentionally will lose opportunities. People said that in 2020, 2021, you need to be underwriting and submitting offers every day

Right now there are so few opportunities because the prices haven't corrected for the cost of capital. They will, they just haven't yet. The time will come shortly when cash will be king. We'll want to be the predator, not the prey.

Should we put everything on hold - no. You certainly can find the very rare examples that have numbers that work. I bought a vacant building last month that luckily recently signed national tenant to a decade lease. You must admit this happens rarely and I was taking a huge risk.

Will we ever see rates in the sub-6% again, I doubt it. As we've seen, it's just not needed to motivate purchasing. The biggest risk I see, when combined with these things I've mentioned, is the inevitable income tax changes that will have to happen to pay down this nut that's grown over the last couple of years along with social security and medicare solvency. This all puts the safest place for money, and luckily with a comparable return and less risk, in short-term securities.

I'm under contract on a $2.5m industrial deal in DFW, 4 acres, 10,000 sq ft plus fenced yard. This has regional long standing tenants on NNN leases, 10 cap on 8% fixed debt

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John M.

Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes

2y

@Ronald Rohde

Congrats. Sounds like beut Clark! Any buildings on site or 100% IOS?

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Travis Rogers

Rental Property Investor · Orlando, FL · Member since 2019 · 109 posts · 49 votes

2y

One thing I'd recommend, and do myself, is diversify a bit just to be safe now that you have sufficient funds to do so (and you have enough funds that you need some protection in what may be a wild market very soon). That to me means different asset classes and different geographic locations (different states, different types of investments), whatever you decide.

If you want passive, you can invest in syndications and mostly passive RE options like manufactured home parks, self-storage, multi-fam, etc. Also, I'm getting upwards of 5% on short term TBills right now which make up a small portion of my portfolio for safety and a decent, passive return. Self-storage is great if you can find a deal, that's tough right now. Industrial outdoor storage is great as well, again, if you can find a lot that pencils.

Personally, I like states that are growing. From there, I diversify my asset class and try to be in several growing/in-demand states.

All the best! It's a good problem to have for sure

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Ronald RohdePro Member

Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes

2y

Quote from @John M.:

@Ronald Rohde

Congrats. Sounds like beut Clark! Any buildings on site or 100% IOS?

Yes, two buildings totaling 10k sq ft. but definitely low coverage

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Thinking about NNN investment with 1,5 million on cash

Thinking about NNN investment with 1,5 million on cash

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