All Forum Posts by: Joseph Dzwiniarski

@Carrie A.

I just finished closing on a property a few days ago

There are a number of ways to have the rents pro-rated to you but the numbers should be in your hud statement on separate line items. The rents can be paid to you as a separate distribution or actually reduce your overall purchase price. Where this gets tricky though is if you are 1031 exchanging your property. You always want the seller to pro-rate the funds in a separate distribution from the purchase price otherwise the rents may be considered boot. Also make sure that the appropriate percentage expenses are pro-rated to the seller and you as well (taxes, water, etc.).

Hope that helps and best of luck on your new purchase!

Hey Everyone,

Thank you for the support. I hope to learn and only stumble a little bit through this first deal. The property fell in my lap at a really attractive price and I thought I would be fool not to try and pursue it further by utilizing my network. 

I'll be sure to keep everyone updated on the progress and what I have learned through the ordeal. 

@Joel Owens

Thanks again for pointing out all those pitfalls. I really appreciate knowing when I'm wrong in my analysis. My background and experience with my family is more in the multifamily realm and I'm trying to see if getting into the commercial space would be right for them. I went back to your podcast and picked up some really good tips, but as you mentioned in the podcast it was only scratching the surface of the elusive appeal of the triple net lease. Do you have any other information (books, podcasts, ect.) that has stuck out to you over your career that would allow me to better analyze these deals as I do my due diligence? 

@Joel Owens

Yup the cap rate is based on today's current sales.

Also Rent is 100% based on gross sales. So if gross sales go down. Rents go down. If gross sales go up rents go up. There is a certain base rent where there is a minimum guaranteed payment , but that is half the current cap rate. Rents won't go up unless sales go up so you are effectively tied to the organization's growth which is highly based on the economy and assuming we are at a peak sales may take a hit in the near future. I looked up the corporation and I don't believe there is any corporate guarantee, but I will look into it more.  

The more i talk about this deal the more sceptical i become with all this information. Thank you for proving that great point of view. 

@Joel Owens

Thank you for the response and all that information.

To give you a general overview. We are looking to finance the deal with as little debt as possible. 

The tenant is a quick service restaurant and is corporate entity.  So this piece of land would have a single tenant.  The franchise owner has rights to the area and is expanding. He just newly renovated the building and sales have been growing over the last 10+ years that he has owned the franchise in that location. 

There are 12 years left on the base lease and 10 year options that take the tenant out to well past 2047.

The lease is Triple Net and the tenant does everything even takes care of all the maintenance. 

Since the lease is based on a percentage of sales there is a lot of potential upside if sales even increase by 2-3% a year to keep in line with inflation. That said there is downside if sales do fall, but there is a minimum lease payment in place. 

I think the key take away here is that the Cap Rate is way to low for the level of risk even though the tenant is locked into a LT lease. 

Thank you again for all that information!

Brief background - My family will need to 1031 a property in the near future and will need the income to live off of. I'm already managing 2 of their rental properties and will not have the capacity to do a third. As such, I was looking into commercial properties that have Class A tenants on long term triple net leases. It seems like this may be a better passive investment while getting a slightly higher cap rate in my market today.

There is one property that peaked my interest that was given to me as an off market deal. The deal is a percentage of sales lease with a widely known class A franchise in the restaurant/food industry (sale lease back). The area isn't the most prized, but there is a lot of traffic which is good for the business. Essentially this lease is like buying a minority interest in the franchise owners business. The franchise owner has a strong credit history has over 20+ stores and the sales of this location appear to be strong. I'm requesting sales and net income for the past 10 years to confirm this assumption. My strategy would be to hold onto this property for 20 years while my parents receive the income and then cash out when the market is right.

Rent: 8% gross sales

Cap Rate: 6%

Base Term on rents: 11 years with 3 10 year options.

In my projections I'm assuming sales increase 1% a year below 3.5% inflation.Using this conservative assumption IRR is close to 9.5% over 20 years (assuming an exit value with 7% cap).

Does this sound like a good investment strategy? Obviously there are a ton of pitfalls if sales fell, which is why I want to do my due diligence on the company, but it seems like a pretty decent passive investment strategy? I would love to hear other people's thoughts? 

@Charlie MacPherson Thanks for the encouragement and it sounds like your fix and flip is going extraordinarily well!

We have to do another 1031 in the future. However this time we can time the close and aren't at the mercy of the seller. It's insane how many deals people will throw your way when they know you only have 45 days to identify (lots of crap with properties that are all priced on pro-forma cash flows! If it is so great on paper why can't other people do it and why has it been on MLS so long?). Luckily we found this one off-market deal that we were able to work out. It wasn't a steal by any means, we overpaid a little bit and had some headaches to finalize the deal, but it worked out in the end.

Hi Everyone,

I’m a Boston based professional. I'm a CPA and a level three candidate in the CFA program (Not sure why I chose to do both? ). Currently, I’m in the process of developing a 3 bedroom single family house with my friend who is a general contractor. I hope to take the proceeds from the sale of this house and roll it into rentals or fix and flips. Additionally, due to some unfortunate family circumstances, my family had to sell some properties in a timely manner and try and 1031 the proceeds. Due to my family having stressed packed schedules, the process of finding these properties has fallen on my shoulders. Luckily, I was able to use all I learned from listening to BP to close on one apartment building (lots of mistakes and learning along the way).

I’m hoping to use the information that I learned from that one transaction and the information on BP to find additional deals in the future, while making new relationships along the way.

Joe