Choosing a suitable triple net (NNN) investment is an important step for all investors. This is true from the multi-billion dollar Real Estate Investment Trust (REIT), to the prudent individuals who view commercial real estate as a stable asset class to stash and grow their wealth. Both investor types should fully know and understand what they are investing in; otherwise, they could lose millions. This is why hiring a quality NNN broker is vital.
Risk management is the most important step in acquiring commercial real estate, specifically when considering NNN assets.
Many subjects fall under the umbrella of risk management, and under that umbrella lives exposure identification. Exposure identification as it relates to NNN investing includes:
- due diligence
- conducting lease audits
- profit and loss statements
- examining property tax records
- tenant payment history
- credit checks
- thorough property inspection
…just to name a few.
“Why would I want to spend the money and time hiring people to research and investigate to this degree?”
Well, NNN investing is a LOW-risk business, not a NO–risk business. Not hiring the right team to work on your behalf can cost you millions in lost income, depending on the investment. For example, let’s say you identify a NNN property and the tenant is a large well-known drug store. It is listed at a 12% cap rate with the option for the drug store to renew the lease for another 10 years. You immediately jump on the deal and pay cash without conducting the appropriate research. Only after you close, you find out the tenant’s lease is up in 2 years and they will not be renewing it. Now you are left holding an asset that has minimal value without a national credit tenant to stabilize it.
Obviously, there are many risks to assess and consider prior to an acquisition. The most prudent investors know the value of a quality NNN broker, and will hire them to help identify potential risks. An experienced NNN broker will conduct many of the tasks stated above to ensure that you place your money in a position to grow or stabilize, depending on your goals.
The risks are too high to hire a general broker who does not keep their finger on the pulse of the NNN market.
In addition to hiring the right NNN broker, other professionals (such as a commercial real estate CPA, a commercial real estate attorney, and a commercial property inspector) are required to minimize your exposure. These professionals will work on your behalf to help ensure a long lasting asset that can pass down for generations.