I've seen NNN investments advertised saying (1) "may qualify for accelerated depreciation", What\who determines if AD applies? The buyer's accountant? 2) "located in opportunity zone." What benefits does O.Z. confer to the buyer? 3) What benefits does an owner receive by selling then leasing back NNN? What are some possible tax implications for the previous owner (now tenant)? Thanks for your great content!
I'm still learning as well, however, I do understand question #3 because I follow publicly traded companies, one reason for a company to sell their property and lease it back is to raise capital, it's a way to extract the equity in the property and either pay down some debt to keep themselves afloat or to use the money for Capital Expenditures, investing in the growth of the company. Hope this is helpful
My confusion is how using leverage can make you more cash then when you pay for the property outright? Wouldn't the cost of a mortgage eat into your profits?
Great question! Yes, it’s true that financing a NNN investment reduces the total net cash flow because you have to pay the mortgage interest and also pay down the principal balance out of the net operating income (NOI). However, aside from the fact that many investors don’t have enough liquidity to pay all cash, savvy investors typically look at “cash-on-cash” rather than just NOI and cap rates when measuring return on investment. Let’s say you acquire an investment property valued at $1 million with a cap rate of 8%. In this scenario, the NOI is $80,000 ($1M x 8%). If you pay all cash, there’s no debt service, so the cap rate and the cash-on-cash are the same. However, if you use financing, depending on the interest rate and how much money you put down, it’s actually possible to increase the cash-on-cash and your ROI. For example, if you put 50% down ($500,000) and got a loan with a 7.5% interest rate, you’d be paying $41,953 annually for principal and interest, which gives you an annual “Cash-Throw-off” (CTO) of $38,047 ($80,000 NOI minus $41,953 debt service) and a cash-on-cash return of 7.6% ($38,047 CTO/$500,000 down payment). So, since the cash-on-cash (7.6%) is less than the cap rate (8%) it might make sense to pay all cash if you can, particularly if your primary objective is to maximize cash flow. However, if you got a 7% loan, the annual debt service is $39,918, the CTO is $40,082 and the cash-on-cash is 8% ($40,082 CTO/$500,000 down payment), which is equal to the cap rate. Obviously, the lower the interest rate, the more CTO and the greater the cash-on-cash ROI. For example, in this scenario, a 6.5% mortgage translates to 8.4% cash-on-cash and a 6% mortgage results in an 8.8% ROI. Now, if you can increase your ROI by putting less down, you have the option to invest your additional cash in another investment to build your portfolio. Plus, by leveraging the $1M investment, you can dramatically boost your total ROI from price appreciation during the holding period. In other words, if you pay all cash and the investment goes up $100,000, you’ve made 10% ($100,000/$1,000,000). However, if you only put $500,000 down, the same rate of price appreciation now translates to a 20% return ($100,000/$500,000). Similarly, your after-tax ROI from the tax shelter created by the mortgage interest and physical depreciation deductions are also multiplied by the leverage created with financing. Still have questions? Give me a call - I’d love to hear from you!
Thanks for the video guys! As I'm learning more about Commercial Leases one question keeps coming to mind, with a NNN Lease where is the line between Landlord and Tenant? I understand CAM, property taxes, insurance but it seems as though the tenant will also be responsible for the structure itself, ie. Roof, and for the systems not included in CAM, HVAC, Plumbing and Electric inside the tenants unit . What is the landlord responsible for? Anything?
Hi Tony - thanks for your interest in our video and your question on NNN leases! In a true "Triple Net" lease the tenant is responsible for ALL expenses related to the property. In this scenario the seller has NO responsibilities. It's mail-box money. Although not a responsibility, some prudent owners will pay for an annual property/building inspection to confirm that the tenant is performing in good faith on their contractual responsibilities to properly maintain the property.
I’m not rich and I don’t know a lot about commercial property. But I know where I live there is 4 commercial properties with tenants that have 15-20yr nnn lease. A couple have a few 5yr options. They cost a couple million each. I believe they would be worth buying but I don’t know how to get into that and don’t know how to get the money. Could you possibly give me some advice on where to start or if it’s a waste of time trying. Thank you
Thank you very much for watching our video and asking about NNN investments! Your first step is get in touch with a commercial lender to evaluate your financing options. Regarding any given NNN investment opportunity, the initial filter is evaluating ROI, typically as a Cap Rate %. Here's 2 recent videos that will give you a good introduction to Cap Rates: th-cam.com/video/7oZkarvj8QM/w-d-xo.htmlsi=8f1d4wn-JPQm9DSY th-cam.com/video/bavrWGCxyR8/w-d-xo.htmlsi=W67hS4_vJTpR5bXO If the Cap Rate meets your criteria, then digging into the lease terms, the tenant's financial strength, property location, building/structure condition and underlying site value are key variables that need to be analyzed in order to make smart choices and avoid costly mistakes. Feel free to get in touch with us to discuss the specifics of the lending process or the commercial properties you are considering.
for me its hard to believe it would go up 4percent a year in value when your initially already overpaying for something like a Starbucks,dollar general or Walgreens in my opinion your paying 50 -60 percent of the initial purchase price for that long term lease for instance paying 3 million for a property that if it weren't on a long term lease would probably only be worth 1.5 million
Your concept of the value is accurate, it's based on the lease because commercial properties are valued based on their income. So the value increases or decreases depending on the income (assuming market conditions are constant). If it's vacant and has 0 rent the value will drop, if the rental rate goes up then the property increases in value. In your theoretical example, if there are 12 years left on the lease term then someone would pay the higher price of $3M. If there is very little time left on the lease, or it's not leased, then that same property will sell at a discount because the buyer is taking on the lease-up risk. An experienced buyer who is familiar with the market could see that as a good deal because they know the rate they can lease it for and how long it will take to find a tenant; and that with the tenant in place they will increase the value significantly. Where as another buyer wants the security of a 5% return without the risk the property sits vacant or leases for a lower rate than they projected.
Local or regional banks. It takes some calling around and asking if they fund the type of deal you're looking to do. Then building a relationship with them. They often want you to move deposits to their bank as well.
We love the DG concept and corporate strength but it appears that their aggressive growth strategy has created an oversupply of available assets. Plus, very few offer rate bumps during the initial term which dampens ROI and limits appeal to inflation sensitive investors. Are you thinking of acquiring one or more DG's?
@@leeabraham9414 Thanks for the response. I've been looking at a few DGs that are for sale. Seems like an approachable NNN investment to get started with but my research has created a bit of concern with their corporate side.
2:20 I call B$. After cov!d Starbucks called up landlords and forced lower monthly payments. Contracts don't mean a thing if one side can throw lawyers at you.
A properly structured LLC in a trust with the right team working for you lawyers can’t touch you or your money. Even if the sue they get nothing, try opening an LLC and trust somewhere like Wyoming or Nevada they are business friendly and you don’t have to live or do business in the state just giving my knowledge from what I have experienced.
How do you have less than 900 subscribers!!! Epic channel
Appreciate that!
It’s because surface level, short clip, Clickbait is more attractive than educational videos, such as these.
Great video y’all!
Appreciate that!
I've seen NNN investments advertised saying (1) "may qualify for accelerated depreciation",
What\who determines if AD applies? The buyer's accountant?
2) "located in opportunity zone." What benefits does O.Z. confer to the buyer?
3) What benefits does an owner receive by selling then leasing back NNN? What are some possible tax implications for the previous owner (now tenant)?
Thanks for your great content!
I'm still learning as well, however, I do understand question #3 because I follow publicly traded companies, one reason for a company to sell their property and lease it back is to raise capital, it's a way to extract the equity in the property and either pay down some debt to keep themselves afloat or to use the money for Capital Expenditures, investing in the growth of the company. Hope this is helpful
I subscribed Because I like how you guys teach; I might get in touch some days.
We appreciate the positive feedback. Please don't hesitate to reach out!
My confusion is how using leverage can make you more cash then when you pay for the property outright? Wouldn't the cost of a mortgage eat into your profits?
Great question! Yes, it’s true that financing a NNN investment reduces the total net cash flow because you have to pay the mortgage interest and also pay down the principal balance out of the net operating income (NOI).
However, aside from the fact that many investors don’t have enough liquidity to pay all cash, savvy investors typically look at “cash-on-cash” rather than just NOI and cap rates when measuring return on investment.
Let’s say you acquire an investment property valued at $1 million with a cap rate of 8%. In this scenario, the NOI is $80,000 ($1M x 8%).
If you pay all cash, there’s no debt service, so the cap rate and the cash-on-cash are the same. However, if you use financing, depending on the interest rate and how much money you put down, it’s actually possible to increase the cash-on-cash and your ROI.
For example, if you put 50% down ($500,000) and got a loan with a 7.5% interest rate, you’d be paying $41,953 annually for principal and interest, which gives you an annual “Cash-Throw-off” (CTO) of $38,047 ($80,000 NOI minus $41,953 debt service) and a cash-on-cash return of 7.6% ($38,047 CTO/$500,000 down payment).
So, since the cash-on-cash (7.6%) is less than the cap rate (8%) it might make sense to pay all cash if you can, particularly if your primary objective is to maximize cash flow.
However, if you got a 7% loan, the annual debt service is $39,918, the CTO is $40,082 and the cash-on-cash is 8% ($40,082 CTO/$500,000 down payment), which is equal to the cap rate.
Obviously, the lower the interest rate, the more CTO and the greater the cash-on-cash ROI. For example, in this scenario, a 6.5% mortgage translates to 8.4% cash-on-cash and a 6% mortgage results in an 8.8% ROI.
Now, if you can increase your ROI by putting less down, you have the option to invest your additional cash in another investment to build your portfolio.
Plus, by leveraging the $1M investment, you can dramatically boost your total ROI from price appreciation during the holding period. In other words, if you pay all cash and the investment goes up $100,000, you’ve made 10% ($100,000/$1,000,000). However, if you only put $500,000 down, the same rate of price appreciation now translates to a 20% return ($100,000/$500,000).
Similarly, your after-tax ROI from the tax shelter created by the mortgage interest and physical depreciation deductions are also multiplied by the leverage created with financing.
Still have questions? Give me a call - I’d love to hear from you!
What do you guys think about ground leases?
Thanks for the video guys! As I'm learning more about Commercial Leases one question keeps coming to mind, with a NNN Lease where is the line between Landlord and Tenant? I understand CAM, property taxes, insurance but it seems as though the tenant will also be responsible for the structure itself, ie. Roof, and for the systems not included in CAM, HVAC, Plumbing and Electric inside the tenants unit . What is the landlord responsible for? Anything?
Hi Tony - thanks for your interest in our video and your question on NNN leases! In a true "Triple Net" lease the tenant is responsible for ALL expenses related to the property. In this scenario the seller has NO responsibilities. It's mail-box money. Although not a responsibility, some prudent owners will pay for an annual property/building inspection to confirm that the tenant is performing in good faith on their contractual responsibilities to properly maintain the property.
@@leeabraham9414 Thank you Lee, very helpful
There is a difference of a NNN lease and an Absolute NNN Lease which is a "Hell or high-water lease" There is a difference.
@@PlayedTV interesting, thank you, I'll do some reading on the "Absolute NNN Lease"
I’m not rich and I don’t know a lot about commercial property. But I know where I live there is 4 commercial properties with tenants that have 15-20yr nnn lease. A couple have a few 5yr options. They cost a couple million each. I believe they would be worth buying but I don’t know how to get into that and don’t know how to get the money. Could you possibly give me some advice on where to start or if it’s a waste of time trying. Thank you
Thank you very much for watching our video and asking about NNN investments!
Your first step is get in touch with a commercial lender to evaluate your financing options.
Regarding any given NNN investment opportunity, the initial filter is evaluating ROI, typically as a Cap Rate %. Here's 2 recent videos that will give you a good introduction to Cap Rates:
th-cam.com/video/7oZkarvj8QM/w-d-xo.htmlsi=8f1d4wn-JPQm9DSY
th-cam.com/video/bavrWGCxyR8/w-d-xo.htmlsi=W67hS4_vJTpR5bXO
If the Cap Rate meets your criteria, then digging into the lease terms, the tenant's financial strength, property location, building/structure condition and underlying site value are key variables that need to be analyzed in order to make smart choices and avoid costly mistakes.
Feel free to get in touch with us to discuss the specifics of the lending process or the commercial properties you are considering.
for me its hard to believe it would go up 4percent a year in value when your initially already overpaying for something like a Starbucks,dollar general or Walgreens in my opinion your paying 50 -60 percent of the initial purchase price for that long term lease for instance paying 3 million for a property that if it weren't on a long term lease would probably only be worth 1.5 million
Your concept of the value is accurate, it's based on the lease because commercial properties are valued based on their income. So the value increases or decreases depending on the income (assuming market conditions are constant). If it's vacant and has 0 rent the value will drop, if the rental rate goes up then the property increases in value.
In your theoretical example, if there are 12 years left on the lease term then someone would pay the higher price of $3M. If there is very little time left on the lease, or it's not leased, then that same property will sell at a discount because the buyer is taking on the lease-up risk.
An experienced buyer who is familiar with the market could see that as a good deal because they know the rate they can lease it for and how long it will take to find a tenant; and that with the tenant in place they will increase the value significantly. Where as another buyer wants the security of a 5% return without the risk the property sits vacant or leases for a lower rate than they projected.
What do you guys think of triple net ground leases?
Where do I find commercial lenders?
Local or regional banks. It takes some calling around and asking if they fund the type of deal you're looking to do. Then building a relationship with them. They often want you to move deposits to their bank as well.
How do you guys feel about Dollar General these days?
We love the DG concept and corporate strength but it appears that their aggressive growth strategy has created an oversupply of available assets. Plus, very few offer rate bumps during the initial term which dampens ROI and limits appeal to inflation sensitive investors. Are you thinking of acquiring one or more DG's?
@@leeabraham9414 Thanks for the response. I've been looking at a few DGs that are for sale. Seems like an approachable NNN investment to get started with but my research has created a bit of concern with their corporate side.
2:20 I call B$. After cov!d Starbucks called up landlords and forced lower monthly payments. Contracts don't mean a thing if one side can throw lawyers at you.
A properly structured LLC in a trust with the right team working for you lawyers can’t touch you or your money. Even if the sue they get nothing, try opening an LLC and trust somewhere like Wyoming or Nevada they are business friendly and you don’t have to live or do business in the state just giving my knowledge from what I have experienced.
@@larrymichaelblecklerii7939 What does an LLC in a trust have to do with Starbucks ignoring lease terms at will?
Contracts and laws mean nothing.
NNN should be banned only favors the rich owner and not the tenants doing all the work.