Out of town NNN investing.

[Wells Mangrum]

I invest in local NNN real estate. I'm considering investing in out-of-town NNN. Out-of-town NNN would help diversify my portfolio. Also, if I buy the out-of-town NNN at my common vacation spots, then I could deduct travel expenses.

How does one perform due-diligence on non-local NNN real estate?

I am ok with employing a commercial broker who knows the location, but how do I know that I can trust that broker?

Also, if I instead get a strip mall and need a property management team, how can I find a property management team that I can trust?

Thanks in advance!

[Joel Owens]

It's not really that the building is that valuable but the DIRT that sits under the building. The building is simply an improvement upon the dirt.

For my clients I look at population growth, property at red light,stop sign, or none of the above?

Any quality back anchors driving traffic to the secondary site? Does the bank anchor own or rent and how long have they been there? Is the road 2,3,4 lane? Any new construction coming for road widening? Will it affect the land size and site layout with parking of the property?

What are the daily traffic counts of each cross road? Per the state is it increasing over the last 10 years, staying flat, or decreasing?

Who is the tenant? Are they national in nature? Even if national are they BBB- investment grade or better? If national and investment grade they might have set up the lease as a individual sub llc or have a subsidiary of a group of locations. If not national in guarantee then you have to look if large franchisee or small and if they disclose ongoing sales per the lease to monitor the health of the business.

With STNL on a newly minted 10 to 20 year lease the value of the property is tied to the tenant, location, and years left on primary term. As that winds down cap rate usually increases. You have to make sure also that rents are not way above market and developer built in TI over the leases. If tenant does not make it and you paid based on inflated rent then you can have erosion of equity upon releasing closer to market rates for second generation tenants.

Median income is about 56,000 nationally so I tend to look for more affluent areas with higher density and incomes.

There are many,many things to look for. Retail centers are underwritten differently as you have multiple tenants for an income stream with a lender so break even occupancy for the mortgage is different.