Kenny explains how Dollar Stores are a potential goldmine for commercial real estate investors. With low operational risk, guaranteed rent these types of stores combat the Amazon/Wal-Mart effect felt in many small towns while offering healthy returns to the investors.
2017 COMMERCIAL REAL ESTATE FUND
-They focused on “The Dollar Store”
CRE FUND PROJECTIONS
-Goal: To purchase commercial retail properties to be leased by publicly traded, high credit tenants. All leases are NN or NNN – meaning zero to low overhead.
-Time Period: Added to the portfolio over a 12-month term.
-Location: Target long-term successful markets nationwide
-Requirements: Investors must be either Accredited or Sophisticated. (Accredited Investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year. Sophisticated Investor, a person who understands the investment.)
-Minimum Investment: $25,000
-Projected Investment Term: 7-10 years
-Projected Annual Cash-on-Cash Return: 7-8% (Cash-on-Cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage).
-Projected Total Annual Returns: 16%+ before appreciation
WHY COMMERCIAL REAL ESTATE?
-As far as investor progression, people may go from single family to multifamily, then to medical offices or double/triple net leases. Not because they make more money, but because they are so much easier. Much less operational risk.
-NNN or NN Lease: Triple Net: The tenant pays rent plus taxes, insurance and maintenance.
Double Net: The tenant pays rent plus taxes and insurance, but the landlord must pay some, if not all, maintenance.
-Rent is guaranteed by corporate or franchisee: Since publicly traded, you can look up their financial information to see their financial health.
-Less evictions/operational risks over residential real estate
-Amazon/Wal-Mart Effect: Smaller towns do not have Wal-Marts and Amazon cannot ship overnight to small towns. So these Dollar Stores are the new general stores.
DOLLAR STORE IN DIANA, TX
-Near Tyler, TX. The Dollar Store wants to shut down that store early, but they must still pay the rent. If they can find another retailer to replace it, the Dollar Store will pay $0.50 on the dollar to pay off the remainder of the lease. Bought at a 9 CAP at $4 per SF. Brand new family dollars they get $8-$10 per SF
EVEN IF THE DOLLAR STORE GOES BANKRUPT, THEY MUST PAY THE RENT
-They would owe rent even before the bondholders of the company
FUND RETURN HIGHLIGHTS
-Actual Annual Cash-on-Cash return: 7%
-Actual Total Annual Returns: 16%+ before appreciation
-Last year’s fund contained 5 Family Dollar stores, 1 Dollar General Store and 1 Dollar Tree store.
COMMERCIAL RETAIL IS A CONSISTENT CASH FLOW
-With retail commercial, it is a pretty consistent 7% return on your money.
WITH MULTIFAMILY, THEY FOCUS ON LANDLORD FRIENDLY STATES
KEY FACTORS OF CONSIDERATION FOR RETAIL COMMERCIAL
-Who is guaranteeing the lease? Research the company financial information. If double net, what is landlord responsible for and what is the tenant responsible for? Length of term left on the lease. What are the rent bumps, if any?
PRO: RENT IS GUARANTEED. CON: RENT IS FIXED
-The trade-off in retail commercial is that you can’t raise the rent, but the rent is guaranteed.
PURCHASED ALREADY EXISTING STORES
-Dollar Stores had higher CAP rates and the leases are guaranteed. They are a publicly rated company, so their financials are public. The location requirements were towns of 3,000 population or more.
DOUBLE NET LEASE: A lease agreement in which the tenant is responsible for both property taxes and insurance. The landlord is still held responsible for structural maintenance expenses. Each month, the landlord receives the base rent plus the additional payments.
TRIPLE NET LEASE: A lease agreement in which the tenant is responsible for property taxes, insurance and maintenance expenses. Each month, the landlord receives the base rent plus the additional payments.
1.What is a triple net lease?
2.What is a double net lease?
3.What is the Amazon/Wal-Mart Effect?
4.If investing in other states, what should you seek when investing in multifamily?
5.What are the key factors to consider when investing in retail commercial?
#DoubleNetLease #TripleNetLease #InvestingInDollarStores
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