All Forum Posts by: Prithvi Sri

I am venturing into STNL as an income strategy to supplement my income from day job and SFR income. Having spent over 20 years as SFR investments, I have very positive feeling about SFR investments - especially because of the capital appreciation I enjoyed in the recent past. Since I am new to STNL, I want to learn from the folks what your experience has been, especially if you have held the properties for over a decade? Did you feel the overall return (rental income + potential capital appreciation) was similar to residential or multi-family investments? If you were to go back in time, which one would you rather do it? SFR, MFR, STNL or MTNL? 

OK, I finally pulled the trigger and going for the purchase of a restaurant of a national brand in Atlanta MSA GA. Following are the pertinent details. One of the posts suggested using the following template to explain the need so here you go. 

Your goals and story: My goal is to add a new stream of income. Currently I have income from my day job as tech guy in SF Bay Area and a few single family residential investment properties. I am not able to scale up additional SFR properties because I prefer managing the properties myself and I feel I am now capped out. Going for an Absolute NET commercial property seems to augment my long term strategy of receiving passive income without a whole lot of management hassle as well as the ups and downs of the residential real estate.

Type of property: The property I am buying is a restaurant building leased to a national brand. 

Location of property: Atlanta MSA, Georgia

Purpose of financing: I am doing a 1031 exchange and would like to make enough downpayment that the property rent will pay the mortgage and some .

Type of financing sought:  I prefer interest only loans but I am sure those are difficult to come by. I prefer non-recourse loans to mitigate risks to my existing portfolio and net worth even if it means I am expected to pay a higher down payment. 

Current or prior ownership of real estate: I have been a landlord since 2002 and bought and sold over a dozen properties over the years. I currently have 7 SFR investment properties in LA and SF Bay Area and I manage all these myself.

Occupancy: The national brand restaurant signed a lease 16 years ago for 15 years. At the end of the original lease,  they extended the lease by another 5 years (exercise of first option - they have two more options of 5 years each with 10% rent escalation) so there is still 4 years lease remaining. The current lease expires Dec 2024.

Value of property at present and/or your offer price: $ Offered at over 2 Mil. I negotiated to 1.7M and signed the PSA.

After repair value: $ No repairs are expected and this is an Absolute Net lease.

Anticipated or actual appraisal issues: Haven't gotten there yet. 

Current rents per month: $13,333$ Absolute Net.

Fair market rents per month: $ Not sure. I am thinking probably 10-12,000. 

Down payment or equity: I am open for a down payment of up to 35% of the purchase price to seek a non-recourse loan. That would be 600K. 

Source of down payment funds, if applicable: Downpayment comes from the 1031 exchange of a SFR home that I am selling. Property is in escrow already and will close before end of the month. There is no contingency on the 1031 though. I have enough funds to pay for the down payment if the SFR sale doesn't follow through.

Income Source: I have a day job in IT in bay area that pays reasonably well. The residential investment properties bring in an extra income. And of course there is rent from the property.

Gross monthly income (optional): $ The subject property brings in 13.3K through rent which should be far more than the debt service. I have approx 12k in positive cash flow from the investment properties.

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: Nothing unusual. A family of 3 having decent expenses (perhaps 6k - 8k a month)

FICO: Last checked, it was 820+

Credit issues: None

Additional details:

Thank you Mitch, will contact you offline.

I wish I realized this sooner. Been a landlord for 20 years and was never able to scale beyond a dozen properties because we felt comfortable managing our own properties but it left no time for my wife to expand/scale. Looking back, the capital appreciation on the properties is probably 3 to 5 times the money we made on the rental income so taking a slight hit to rental income but scaling higher would've made us made a lot wealthier folks. 

Thanks for the hard hitting response. Agreed on almost all the counts. Especially the point about figuring out what the rent for it if I were to go to market today to rent it out. 

Here's how I did my math though. By going for 9% CAP, I am making probably an extra 12% total over the next four years. At 6% CAP, that is almost two extra years of rent - something I can afford to keep the unit vacant while scouting for a replacement tenant. I checked the comparable sales in the neighborhood and other active listings around. They all are slightly above the subject property on a per sft basis which gives me some confidence that I can rent it out should the tenant leave after 4 years. I could be wrong but that's what I am going to find out.

OK, thanks to all the advice and mentorship I got from this forum, I am able to pull off the first Letter of Intent (LOI) for a commercial restaurant building in Greater Atlanta, GA area and got it accepted. Seller sent me a copy of the Purchase Sales Agreement (PSA) as well as the original lease agreement seller had with the tenant (corporate lease) and an extension they signed a couple of years ago. All of them together are over 100 pages with a ton of legalese. I guess here is where I need a professional attorney to review and counsel me. Can you please suggest any good attorney that you worked with in the past? Also please let me know how much should I be typically paying for something like this? The deal is worth almost 2 million if that info is needed to make the reco or price suggestion.