First NNN Investment Property

[Robert Harpster]

Brand new to the site and looking to purchase first investment property. Located a NNN two tenant 2600 sq. ft building built in 2003 and renovated in 2016. The numbers are:

Price $600K

Cap rate: 7.0%

NOI: $41, 625

One tenant lease is up in 7/2021 (Gross Lease) and the other 9/2026 (NNN Lease). Both spaces are 1283 square feet. Both tenants have drive-thru windows. First lease was six year and second is a ten year.

My initial concern is having the building appraised. Property taxes are $6093.00, Want to see what comps are running at. 

Does anything immediately jump out regarding this purchase? How do you ask if the expiring tenant expects to renew? What questions do I need to ask?

The information on this site is amazing and I apologize in advance if I left out any information. 

Thank-you!

[Joel Owens]

Hi Robert,

Generally an appraiser will take out vacancy for the market in underwriting if you are getting a loan. Also if current rents are above market the appraiser generally (marks to market) the rents. So if 18 a foot is being collected for your tenant and box size and market is 12 then there is a problem. If tenant goes out lender knows in market best case you might get 12 a foot and income stream would change and valuation of the property.

You need to see if you have mom and pop tenants,regionals, or nationals and look carefully at every word of the lease agreements including options to renew and timelines given for notice. Look at personal guarantees/corporate on the lease and business updated financials and personals on a quarterly/biannual/ or annual basis.

There are tons of other items to look for. I specialize in NNN properties but minimum I work on is on the millions in price per deal. The smaller deals take up too much time for the return. You might be best served in that price range and asset type finding a commercial attorney with NNN experience local to the property. There might be also commercial brokers that work in that smaller price range.