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June 22, 2011 / George Avakian

NNN Investments – Drive Thru Cash Flow

Most of the cold calling I do is to apartment and office building owners. Almost 90% of the owners I get to talk to aren’t really interested in selling. In fact they’re usually pretty rude about it hehe. But if they were, they’d either only sell at a really high price or just to be able to exchange into a property where they’d be able to enjoy the cash flow of their investment without any headaches. These are people who own and manage multiple properties and always have to deal with minor management chores like collecting rent, paying their upside-down mortgage, finding new tenants, fixing broken toilets, dealing with contractors and so on. So, naturally, you can imagine why a management-free investment would sound amazing to someone who absolutely hates the management aspect of owning real estate.

Over the last few months, I’ve confirmed a rising new popularity amongst my clients towards NNN investments. A NNN (triple-net) leased investment is where the tenant of the property not only pays the landlord rent, but also pays for the maintenance of the building, property insurance, and property taxes. This lets the investor or property owner simply sit back and collect the rent without having any management duties whatsoever. Most of the time you’ll see major fast-food chains or franchise stores on these types of leases; Burger King, Starbucks, Taco Bell, Carl’s Jr., Walgreens, etc. .

Since I listed a Del Taco property in Riverside County in May, I’ve had the pleasure of speaking with hundreds of different investors who really only play with these types of properties. I asked them how they got into it in the first place and 9 times out of 10 they’d say they sold property that they inherited or owned before (usually apartments) and traded into NNN deals because it was easy to manage. They’d say that although they could be making a little more money in another product type like apartment buildings, this was the safest bet for their retirement.

Why are NNN deals so “safe”? Well, for starters, if a corporate-backed franchisee of, oh, let’s say McDonald’s couldn’t pay their rent, there would have to be some pretty epic economic catastrophe to explain it, right? We as Americans love our fast food. We love our coffee. We love drive-thru. Doesn’t matter if you’re rich, poor, black, white, fat, skinny…at some point in time (some more than others) everyone goes to these restaurants. It’s probably one of the very few industries that make a huge profit in a good economy and an even bigger profit in a bad economy. So, you can be sure that as a landlord, you’re pretty much guaranteed income for as long as you own it. It’s sort of the “low risk, low reward” alternative to real estate investing. If you put your money in a bank, the most you could get is maybe 2% return on your money? If you bought an office building, depending on the kind of deal you made, you’re maybe getting somewhere from 7.5-10% on your money? With a NNN deal like the Del Taco I’m currently selling, you’re making between 6-7% return without having to worry about a single thing.

I find it kind of funny that major fast food and pharmacy chains not only make the consumers’ lives “easier” and more “convenient”, but their landlords’ lives too. It’s like drive-thru cash flow!

That’s all the rambling I’ve got for now. I’ll have an update as soon as the deal is sold.

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One Comment

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  1. Ara Rostamian / Aug 31 2011 4:55 pm

    Awesome George ! Good rambling!

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