Do you have investors that are getting fed up with their rentals? The constant calls from tenants asking to fix basic problems?
I've got an answer!!
NNN Leases - The three N's stand for Net with each one symbolizing Property Taxes, Insurance and Common Area Maintenance.
Do you ever wonder who owns that piece of dirt that is now under construction for a Burger King, Carl's Jr. or McDonalds?
Likely the fast food chain is simply leasing the property on a long term ground lease.....and somebody is sitting at home collecting a paycheck. Many times these leases include increases on annual basis so that the investor is seeing some gains in the annual profit otherwise known as the cap rate.
Example -
Joe owns a piece of dirt near a major freeway interchange, his broker has helped him climb the corporate ladder at Arby's and they are willing lease the dirt for $80K per year with 2% annual increases for a term of 20 yrs. with some options to extend.
Joe has a current loan on the property for roughly $800K and has a good interest rate. Based on this scenario he would be earning an 8% cap rate (which is higher than most duplexes, triplexes and apts). If for some reason the tenant decided to vacate after the 20 yr term Joe would be left with a building he didn't pay for and can release to a new tenant. If they stay for the options then Joe will be gaining an even better cap rate.
As a residential agent I can imagine this looks like a daunting task, understanding ideas, concepts that you don't generally practice or are inexperienced at. So refer your client to a commercial agent who does this on a daily basis, they will likely pay you a 20% referral for doing so and may be able to create a paycheck for you without the hassle.
This is only one example of NNN leases where the landlord has no responsibility and many other options are available today to the passive investor including Class A tenant in common properties with guaranteed cap rates and no management responsibilities to much riskier strip retail buildings that require minimal management but often higher cap rates.
Remember, adapt and be creative with your clients as the markets seem to slow - the money is going somewhere it hasn't disappeared it may just be moving to safer havens!!!
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