The Real Estate Launchpadwith Jonathan Twombly
Join Wall Street lawyer-turned successful multifamily real estate investor Jonathan Twombly as he interviews the best minds in the real estate investment business today. We go deep into the business of real estate – way beyond first
Why A Triple Net Lease Is An Excellent Investment For Retirees, with Dusty Bates and Steve Harper, Ep #31
Dusty Bates and Steve Harper, two California-based commercial brokers, join Jonathan on this episode to educate listeners on a triple net lease. Dusty and Steve help baby boomers nearing retirement sell multifamily properties and transition to triple net lease properties. They explain that triple net leases have many advantages such as being stable, providing consistent income, and being very hands-off investments. You are sure to enjoy this episode if triple net leases are a topic of interest for you. Listen as Dusty and Steve share why triple net leases are attractive for retiring baby boomers, what makes a good triple net lease investment, and how to evaluate them.
What is a triple net lease?
Dusty and Steve explain that a triple net lease is simply a leased property with advantages. The triple net portion means that all of the property taxes, insurance, and maintenance costs are paid by the tenant on top of their rent. With a triple net lease, there is little to no management other than receiving annual certificates of insurance from the tenant and proof that property taxes have been paid twice a year. Triple net leases allow owners to “get rich slowly” with a structured investment and hands-off approach.
What makes a good triple net lease property?
There are several factors that make a good triple net lease property. Dusty and Steve agree that location is vital. You must look at the market and submarket around the property. They help their clients select properties and run studies on the area to make sure the location is good in the short and long term. In doing due diligence, Dusty and Steve look at the length of time left on the current lease and the strength of the tenant. The quality of income strength is key, and they typically like to see a remaining lease of 10 years or longer. There is always a guarantee on the lease, whether it be from a corporation or high net worth individual. This means that should the tenant default, this business or person will pay the rent and expenses. Dusty and Steve share that they want to see good financial viability of the entity or person guaranteeing the lease as well.
The safest industries and geographical locations for a triple net lease
Dusty and Steve share that there are several safe industries to be in for a triple net lease. Fast food and quick food are two types of business that remain steady. Medical companies are also very safe. They reference Harry Dent’s prediction on the current economy based on an aging population. Currently, there are mass retirements from the baby boomer generation that will continue until 2025. Because of this, there is a need for medical care. Dusty and Steve mention the need for dialysis centers is on the rise, so that industry is great to have in a triple net lease.
There are geographic locations that are better for a triple net lease. Dusty and Steve look for states that are business friendly to put people into a triple net lease. Rural areas are more risky, so Dusty and Steve do not advise their clients to purchase there. Instead, they look to city centers where business is booming, and the viability of a tenant staying in business is higher.
Exchanging multifamily properties for a triple net lease: how their program works
Dusty and Steve have a program that helps baby boomers looking to retire transition from multifamily investments to triple net lease properties. To begin, they build an analysis for their client. They look into their client’s current multifamily property and analyze how it is doing, what it is lacking, and what could be done better. A detailed report is made from this analysis. They then show their client several triple net lease properties, and they compare these along with the client’s current property side by side. Clients are then able to make a decision and close within 60 days. Dusty and Steve say that the hardest part is figuring out what the client wants, but once that is nailed down, they can finish the deal.
In This Episode Dusty Bates and Steve Harper say…
- [2:09] Who they are and what they do
- [3:32] What is a triple net lease
- [5:19] What’s in it for the owner of a triple net lease property
- [6:47] What makes a good triple net lease property
- [9:29] What goes into due diligence
- [11:11] How to evaluate the financial strength of a tenant
- [17:00] Lease terms they are comfortable with
- [24:44] The safest industries and geographic locations to be in
- [32:39] The spread between a “AAA tenant” and someone who isn’t
- [36:47] How their exchange program from multifamily to triple net lease properties works
Resources Mentioned In The Episode
- Jonathan@MultifamilyLaunchpad.com – Learn to be an asset manager and Investor
- Bellwether Enterprise(sponsor) – contact Will Oldham firstname.lastname@example.org
- Free Download of Dusty and Steve’s Book:www.TheRetiredInvestorBook.com
Connect with Dusty Bates and Steve Harper
- To Call or Text Dusty Bates: 916-804-2128
- To Call or Text Steve Harper: 916-798-1116