I am looking at some Net leased properties which are out of state for me. These are NNN leased to recongnized brands like popeyes chicken, taco bell etc. Following are the basic details:
Prices ranges from 400,000 to 1,000,000. We will be putting 20% down.
Leased is 20 years NNN with two 5-years extensions option.
Currently owned by franchisee.
I have following questions.
What type of extra due diligence I need to do for this kind of deal other than inspection, survey, appraisel.
I do not have a broker I spoke directly to seller’s broker. Would it be wise for me to have the broker represent me. How I go about finding the good commercial broker in the area.
What type of financing I can get for this kind of deal. I want to get the ball park rate to run my number.
How much is typically the closing cost.
How do I make sure that price per sq. ft./Rent per sq. ft. makes sense for the area. I think if I have broker he/she will be able to help me with that.
What happens if the tenant cannot continue due to financial problem etc.
All good questions. If the sellers agent is a good one they can help you get comps for the area. Have you tried Loopnet, it is a great commercial MLS. You should expect a smaller cap rate on NNN deals especially with A+ credit tenants.
Financing is wide open depending on your credit. Rates are usually lower with your good credit at the 20% down and with the tenants credit rating as well being strong. You may post this question in the financing form for some better responses.
If they tenant can not pay you can lock the door and then evict unless they file chapter 7 or 11 BK. Then you will have to follow the reorganization plan or file a motion to evict with the court. It can get real ugly real fast. Try to keep some reserves in case this may happen is the best solution. I wish I could practice what I preach here.
There is a trade off between return and safety. The NNN deals with A+ credit offer lower yield but stability. I am doing a office warehouse with a cap rate over 20 but it is a rehab where I will be spending more on the building than I am paying for it and renting to small construction company owners and auto body shops etc. As an example the rent should be from $7500 to $9000 per month for the 30,000 feet and my total investment will be $350,000. I will have about $1000 per month taxes and insurance with very little maintenance as it will be the tenants responsibility. At $5000 per month NOI will give me a cap rate 17 %