Alternative investment yielding 10% +

  Real estate investing is some thing that would turn off most people in current times, but there are some opportunities in commercial real estate that every investor should consider. In this article, I will try to explain how any investor can take advantage of investing in triple net properties, possible limitations and dangerous involved.

  If you buy a property for $100,000 and rent it out for $700 a month, it produces income of $8400 per year, returning 8.4% and is called 8.4 cap. If this property is bought with $40000 down payment and borrowed the rest for 6% interest, it would yield 12 % ($8400rent - $3600 interest).

  With one exception, the above statement is deceiving and frankly offensive to anyone even with slightest idea about real estate investing for following reasons and more:

1. There are several expenses like real estate taxes, insurance, repairs and maintenance.
2. If the property is vacant, landlord is not only stuck with mortgage but also expenses.
3. It is not only difficult to find a decent tenant, but a mess to deal with, if the tenant defaults.
4. Since the banks are dealing with real estate losses, it is not quiet easy to get loan for investment properties.

 Exception: In case of absolute triple net lease, the above statement about yield is completely true.

Triple Net lease: Net-Net-Net lease is commercial real estate lease in which, tenant pays for all taxes, insurance and maintenance. So, almost, all of the expenses are passed on to the tenant. The property is already occupied by a tenant with long term lease in place. Tenants can vary from stand alone business like a single unit restaurant to a corporation with few thousand locations.  Several NNN properties, backed by corporate guarantee with 8% cap rate can easily be found in the market.

 These properties are expensive and mostly start around one million dollars and go up to several millions. But the price of the property should not discourage you, because you can partner with a group of friends or find firms that offer Tenants In Common. Following are couple of links where you can find TIC properties:

http://www.tm1031exchange.com/property/tic1-0404a.html#item

http://www.cornerstoneexchange.com/

   If you like greater control in making decisions, you can find your own group of friends interested in investing, form a company such as LLC, find property that every one likes and buy the property.

Where to find triple net properties?

There are several online sites that show the database of NNN properties available for sale. Some of the sites are listed below:

http://www.nnnex.com/

http://nnnpro.com/content/

http://www.nnn-properties.com

http://www.nnnsales.com/

http://www.loopnet.com/NNN-Properties-For-Sale/

Triple net lease vs Absolute triple net lease: While triple net lease covers some maintenance of the property, might exclude some like structure and roof. But absolute triple net lease is true triple net lease, covering all maintenance.

Purchasing the property:

Once you found the right property and have a purchase contract, do your due diligence and apply for the loan. Loan approval requires some patience and hard work as most banks will offer to finance the second loan for your company, but not the first loan and will only finance for a maximum of 65% loan to purchase price. All partners will be required to provide their financial statement and last three years of tax documents. A corporate backed lease, by a corporation with a good credit rating will come in handy for the loan approval.

Drawbacks:

     The value of these properties is mostly based on weight of the lease signed by tenant and is not worth whole lot if tenant defaults. This is why it is extremely important to look for lease backed by corporation with good credit rating. It is also important to diversify your portfolio, if you are going to invest in more than one property.

      This is long term investment and investment in these properties is not as liquid as a CD in the bank. It might take several months for the property to be disposed and if it is only one partner trying to cash out, must convince other partners to buy out their share.

Disclaimer: This article is for information and not an investment advice. It is responsibility of the reader to cross check this information against other sources and take help of an accountant and attorney in the process.