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everybody I'm Joe Killinger I'm a real estate investor an entrepreneur and we put these videos together every week to give you all the tips and insights from my experience over the last several years so make sure you tune in and subscribe and thank you [Music] everybody thank you for tuning in today I've had a lot of requests to talk about Triple Net properties and so for that I reached out to George Pino George thank you for coming in today having me George hello oral surgery so give his bite plate yeah I have like a little front my front teeth okay so if it goes flying across the room just me be sure to LIKE and subscribe so anyway George thank you for coming in George has a room has a focus on Triple Net investments so you've done Triple Net investments in what thirty some states about that you know primarily focusing on single tenant triple net leases which can be a great investment opportunity for a lot of different investors for different types of part of the portfolio can you kind of I guess let's start from the beginning okay what is a triple net investment well triple net basically mean that the least rate is net net net to the landlord meaning they don't have any expenses or any costs associated with the operations of the property the tenant actually pays for all that so the tenant will pay for all the repairs the tenant will pay for all the maintenance the town will pay for the insurance as well as the property taxes so all that is paid for by the tenant so the landlord receives a net check of the rent okay who is the typical buyer of Triple Net properties you know it varies but typically we older or younger the demographics are pretty vary but we are seeing the lately we've seen a pretty good shift in a little bit older demographic those are looking for more of a stabilized cash flow investment as opposed to a large appreciation so they know exactly what they're getting into because a lot of the single tenant triple net leases tend to be a long term lease anywhere from 15 to 20 years potentially up to forty or sixty years with options who would typically do like a 60 well you see like Walgreens or CVS drugstores most structures of Lisa's like the fast foods for instance are typically in the 15 to 20 year initial term with four or five year options so they could potentially type the property for 40 years with the options a lot of the drugstores actually may have a six year lease with potentials for cancellations at certain periods during the Dilys term okay what how do you value a triple net investment oh good question you have to take a look at quite a few different things you know the value really depends on the length of the lease the location of the property you know I think location location location it's just as true for single ten triple net leases as is for any other real estate also the tenant it complained a big factor as well I would think so if you have somebody that's original compared to a national that has to be a credit pretty big difference doesn't it can be huge especially if it's a corporate guaranteed lease versus a franchisee guaranteed lease Oh could you actually I'm gonna stop you there and let's because you threw that out there about corporate guaranteed and Fred could you yeah can you break that down please well depending on the tenant many many of the the lease guarantor is you know even though it may be lets say a Burger King's for instance you know 98% of all bird teams are franchisee owned so most of those leases are actually guaranteed by the franchisee okay that doesn't mean it's bad because some of the franchisees can own 4 or 500 locations so they can be just as strong as some of the larger corporations that own 300 locations so you know that's not necessarily a bad thing but then you have something like McDonald's where majority of them even though their franchises majority the leases are all guaranteed by the corporate McDonald's so you know you have a very strong guarantee coming in on a you know the McDonnell USA and same with the you know if you're looking for that type of strong guarantee you have 711s even though they're all franchisee run for the most part they're all guarantees that are guaranteed by the corporation jack-in-the-box used to do that we're seeing a little bit of a switch where they're a little bit more franchise guarantee so it really depends on the location the lease and you know who the guarantor really is so yeah okay so since I kind of took a slide track back to evaluation if you're really you would place a higher value on a big national chain correct well you would typically place a and what we do is we look at capitalization rates evaporates and when we go to trade it so a larger corporate guarantee chain national chain would typically trade and lower cap rate so therefore higher price than one that is a regional or local there are some exceptions to the rule because there are certain some regional companies that may be the belle of the ball at the time right now and they're really trading at low cap rates you know you got in and out for instance everyone loves them they think it's a great concept so they think it's a risk versus reward so they're willing to pay a little bit more with a little bit less because the risk is mitigated they feel and so therefore you know they're paying a little bit more for it the same goes for ploy a logo seems to be one as well that seems to trade at a for the size at a fairly low cap rate and del taco so you know there's definitely some that are our regional companies that are trading more on a cap rate basis at national companies with compared to okay what kind of location you look for you know I look for locations that are one in growth areas you know first thing we do is look at the demographics what are the demographics within the area what how you know income demographics and growth demographic what's the expectation what was it five years ago what is it today what's expectation five years from now for both on the income level and also in population so we start looking at that and then we start bearing down into actual location you know we look for you know the best location would be a hard core that it would meaning a corner of a city with a lot of intersection intersection that has high traffic counts maybe rather well some foot traffic depending on the city in the location but generally we'll look at cards for days but also look for other traffic generators you know is it an out parcel to a Super Walmart center is it a you know is it right next to a university or school or hospital things that are not necessarily going to change in the long term but are always going to be in demand and always going to drive traffic to that location so we look for that the next we look for is how difficult is it to replace that location meaning these are a lot of vacant land in the immediate area can they easily move as the lease is over next door or two doors down or a block down and not really affect the business so when you look at infill cities that can be very difficult and in fact certain cities especially in California you have Los Angeles San Diego San Francisco you know they all have moratoriums on fast-food drive-throughs so because of that any fast food is right now in demand because you can't replace those locations it has barrier to entry so when you have those type of barriers to entry that really makes the investment a little bit safer okay the I see this as an opportunity for almost everybody I mean from somebody that is that no it was a very little risk and I almost said no risk but they're so interested but wants very little rest I can see this would be a good investment if you get a national chain corporate guaranteed and if you're the younger you're starting to create a fun or syndicating deals it'd be a good way to kind of start as a platform to build off of and go for you know start off with a good number of triple net investments and then move it into higher risk as you're going well absolutely I think it's right for everybody and it's not just right for everybody in that aspect but there's other ways to create value you know even leases that are shorter in term they may trade at a higher cap rate because of the risk but you can mitigate that by understanding you know some of the older leases have are tied to performance meaning they have percentage rent or the store has to report sales so if you know what the sales are you know what the average sales are for the for that type of location or that type of product you can really determine whether or not the planning on staying and by so doing you could either renegotiate or bring in somebody else especially if you know the demographics and you know the area for instance chick-fil-a right now is making a huge push to grow in Southern California and because the moratorium is in some of the areas it's very difficult to find locations for them however they're also paying some of the highest rents and they also created some little lowest cap rates so it's a win-win for an investor if they could bring chick-fil-a in to replace a Burger King or replace a Taco Bell or replacing del Taco or other fast-food concept because they're trading at a little cap rate they're willing to pay higher rents they're out bidding most people out there corporate guaranteed and you can increase the value and in some cases double debility tough to beat but you need to have the right location where you know the lease term is very short no options or you might be able to buy out the Tennessee yeah absolutely absolutely yeah the you know let's say you're an investor I want to hear your best-case scenario I guess what's the best deal you've done with a triple net investment well you know I actually ended up I sold a Del Taco to a client of mine it had seven years remaining on the lease and it in Hesperia older property it had already been in for 40 years and the the client was actually a little insured wasn't sure if they should buy it my recommendation was absolutely I think this is a great investment seven years left seven years left on the lease Danzig will make that decision well it was one of the older leases that are paying for Terran they're only paying 5% in rent over sales so now which is really low for the fast food margin but more importantly the sales at the location they were doing 150% of average store sales on a system-wide basis so this was a location that they were not gonna want to leave right now what ended up happening he ended up buying the property and going forward and you know a few months later he decided you know I really want another property instead I you know he was still worried about the lease renewal what was happening he was can you sell this for me and it was not anything I did it just happened to be right timing so I was able to sell that at a little bit of a profit to sell my to cover commissions and cost of sale and stuff so we actually made a little bit of money probably about almost a five ten percent return okay in what time frame um this was only in about a six month time frame six seven left I'm fairly good not bad so on a you basis he probably ended up he paid all cash but you know that's probably supposed to do a 10 1% return now the client I actually ended up selling it to another coin of ours and that client was asking the same questions and I said well if you're really concerned let me renegotiate the least now and you know of course that's something that's extremely difficult to do to her oh she ate at least that so I 7 years remaining on it because they have no reason to right so he was more concerned about the length of the lease so what I did was I went to corporate del Taco I gave him a call and said you know I'd like to talk about renewing the lease and they said we have seven years remaining why should we renew the lease now my reply back was it's a great location you want to be here eight year from now right and we're going to make this as easy as possible so what we ended up doing was negotiating a lease extension a full brand-new lease 15-year term two five-year options a little bit of a bump it even and them agreeing to do a remodel on the location at their cost so landlord was out of pocket nothing had brand-new lease we ended up being able to that was a five we sold it to him at a five point seven five cap because of the length of the original list of no options with the brand-new lease and new options and the increase in the price we sold at a four point two we got an offer I didn't sell it got an offer almost eight months later at a four point two five cap over a million dollars more than what they paid my client said at first didn't want to take it but then decided to take it ended up selling it making a huge return close to think so it was close to about a I want to say about 65% return in less than a year those don't but you asked for the best oh yeah so yeah that's for the best one and then we actually went and purchased a bird king that was a large franchisee corporate guaranteed of Tennessee that increased his income even more and he was able to look for cash flow which is what he really wanted he didn't care about the valuations more about the cash flow because he was retiring okay so worked out great for everybody yeah well I love to hear those stories okay I think we should give him anything else you want to add to it we're getting kind of long here so no you know I think we covered a pretty pretty good generality of the singleton Pro connect if you'd like to learn more please do feel free to reach out to me yeah happy to help out I think you should be part of everybody's investment portfolio yeah I think it's a great opportunity and one of the most liquid forms of real estate that there is yeah always a mark being it's it's a great way to really get yourself going with investing so thank you very much for tuning in make sure you I can subscribe and we'll see you next week thank you [Music]