Full transcript
0:00We love these buildings because we can
0:01secure triple-net leases. A triple-net
0:03lease is a special type of lease. The
0:05tenant is going to pay us a base rent.
0:07In this example, it says the revenue is
0:08$7,275
0:10a month. That's with triple-net factored
0:11in. The base rent is $6,000 a month.
0:14But, above and beyond the base rent that
0:16they pay, they pay us an extra $1,275
0:19a month because that is the triple-net
0:21expenses. Triple-net expenses are
0:22property taxes, insurance, common area
0:25maintenance. We, on most of our
0:26buildings, are not paying for the
0:28property taxes, insurance, and common
0:29area maintenance. Because we're not
0:31paying for those, it allows us to
0:32increase our profits to the bottom line.
0:34That's why we love light industrial
0:36buildings or commercial buildings. The
0:37building that I'm sitting here right
0:38now, it's a building in our portfolio
0:40that we own. About 64,000 square feet.
0:42We don't pay maintenance, we don't pay
0:44property taxes, we don't pay insurance
0:45because it's all covered by the tenants.
0:47Triple-net leases are why we love these
0:49types of buildings. In years past,
0:51what's called a gross lease, which is
0:52where you're just taking the revenue
0:54that comes in and subtracting your
0:55expenses from it. There was a time where
0:56that was the standard. Today, it's not
0:58the standard. Today, triple-net is
1:00slowly becoming more and more of the
1:02standard. That's allowed us to increase
1:04our profits tremendously. All right,
1:06check it out. When you're watching these
1:07videos, we know that you guys have
1:08questions that aren't answered. Might be
1:09about business, might be about real
1:11estate. Well, guess what? We can answer
1:12all those questions that aren't getting
1:13answered in this video. So, shoot us a
1:15text at 928-605-4335 because there's
1:16questions that need to be answered and
1:17this dude and I will answer those
1:18questions for you. 928-605-4335,
1:25shoot us a text. Now, let's jump into
1:26this building and I'll kind of walk you
1:28guys through exactly how it played out.
1:29This is a light industrial building.
1:30It's 4,197
1:32square feet on 2.32 acres. This acreage
1:35is all fenced in. It's got a beautiful
1:36block wall with a power gate and barbed
1:39wire around the fencing. The purchase
1:40price was $525,000.
1:42Our down payment was $131,250
1:45and we got this on a seller finance. We
1:47did not have to go to a bank to secure a
1:49loan on this property. The seller
1:50carried this balance of $393,750
1:54on a 25-year amortization term at 9%
1:57interest. So, our payment is $3,304.34
2:00per month. Now, you're probably
2:01thinking, 9% interest, that seems really
2:03high. It is higher than normal. We did
2:05this deal like this because of time. We
2:07can go back to a bank and get this
2:08refinanced right now and get this rate
2:10and this payment lower, but we didn't
2:12want to go through the process to deal
2:13with underwriting and deal with whatever
2:15they were going to need from us to
2:16actually go and get a loan on the
2:17property. We wanted to close this quick
2:19and we were able to come up with this
2:20down payment really easily. So, the
2:22quickest way to close this deal with the
2:24remaining balance was required,
2:25$392,750,
2:27but the sellers were willing to carry
2:28that loan. So, we just put together a
2:30very simple contract that said, they're
2:32going to carry this balance. It's going
2:33to be amortized over 25 years. We're
2:35going to pay them a 9% interest rate.
2:37And so, their monthly payment they get
2:38is $3,304.34.
2:41In this scenario, we brought in a
2:42partner to close this deal with this
2:44down payment. We didn't have to come out
2:45of pocket with any money. Our partner
2:47that we brought in saw how good this
2:49deal was going to be and they were more
2:50than happy to put up the down payment
2:52because we already essentially had a
2:54tenant secured before before we even
2:55bought the building. That's simply
2:56because we already did the work prior to
2:59buying this building. We've been
3:00building relationships with brokers,
3:01we've been building relationships with
3:03tenants that need space. Space that fits
3:05the specification, 4,000 square feet on
3:072 acres. A lot of people, a lot of
3:09contractors are growing their businesses
3:11right now faster than ever before. I'm
3:12sure if any of you guys deal with
3:13contractors, you know that the
3:15contractors, they literally can't get to
3:17you same day or even within a week
3:19sometimes. You're being pushed out 1, 2,
3:213 weeks before they can come and do any
3:23work because they're so busy. A lot of
3:24these contractors need more space. We
3:26are the landowners that are supplying
3:28them with the space to grow their
3:29business. We already had a list of
3:31people. We just reached out to our
3:32people and said, "Hey, we're about to
3:33buy this building." And during the
3:34escrow period when we had the property
3:36under contract, we were already putting
3:37this building out to potential tenants
3:39to see if they were interested in
3:40leasing it from us. Within 15 to 30 days
3:42of being under contract, we already had
3:43a tenant with a signed letter of intent
3:45to lease this building. So, we knew we
3:46need to close. The way that we got in
3:48this deal, no money out of pocket.
3:49Number one, we had a partner bring this
3:51money. Number two, we had the owners
3:52finance the remaining balance. Now, the
3:54value add, the building was vacant. It
3:56wasn't being marketed for lease. It
3:57wasn't listed anywhere. This deal, it
3:59came across our desk the day before it
4:00was going to go on market. We knew the
4:02day it went on market, it was going to
4:03sell. It was such a prime location, and
4:05it was such a perfect building in great
4:07condition. We didn't have to put in a
4:08bunch of money into deferred
4:09maintenance. All we had to do was secure
4:11a tenant to bring the value. What we
4:12ended up doing, the value adds here.
4:14Number one, we secured a tenant. That
4:15was the biggest one. Because banks value
4:17commercial properties based off of the
4:19amount of money that property generates.
4:20It doesn't have to really deal with
4:21comps or anything else in the area. It's
4:23based off of the income that that
4:24property is going to generate. We knew
4:26that if we went in and secured a tenant
4:27immediately, that is going to increase
4:29the value of the property. Then, the
4:30tenant improvements, TIs. Those are the
4:32costs that normally would be passed on
4:34to us to get a building ready to lease
4:36for a tenant. The tenants that were
4:37going to go in this building, it was
4:38already basically in what's called gray
4:40boxes. That's just when the property is
4:42in such good condition, we don't have to
4:44go in and do a bunch of deferred
4:45maintenance. We don't have to fix ACs.
4:46We don't have to build out offices. We
4:48don't have to fix roofs. We don't have
4:49to reskin the buildings. This building
4:51was in great condition, so we didn't
4:53have to put a bunch of money into making
4:55it good for a tenant. All the tenant
4:57improvements, some minor paint that the
4:59tenant wanted to do, they wanted to
5:00enclose that section to start in the
5:02warehouse. All of that were placed on
5:03the tenant. The tenant leased it as is.
5:06We didn't have to come out of pocket
5:07with any more money to get it ready for
5:08that tenant. That's not always the case,
5:10but this was just a smoking deal and an
5:12amazing building. That's not how it
5:13always plays out. This one did play out
5:15that way, so we didn't have to come out
5:16of money for any deferred maintenance.
5:18The current value would be right at
5:19about a million dollars. We paid
5:21$525,000 for it. The day that we signed
5:23that lease, the building value has
5:25jumped to a million dollars. The bank,
5:27when they see this lease and how much we
5:29net before a loan payment, that's what
5:31they value the income off of. It's
5:32called a debt service coverage ratio.
5:34When you take your revenue, including
5:36triple net, and you subtract your
5:37property expenses, property taxes,
5:39insurance, management, maintenance, that
5:41number that's left over is compared to
5:43whatever your loan payment would be to a
5:44bank. Because of this scenario, our
5:46value would be right about a million
5:47dollars. Now, I'm going to kind of walk
5:48you through how the building actually
5:50broke down. The lease we secured $7,275
5:53per month triple net. The base on this
5:55lease is $6,000 a month. We added $1,275
5:59a month for property taxes, insurance,
6:00common area maintenance. The maintenance
6:02is directly taken care of by the tenant.
6:04Meaning they're never going to get a
6:05bill for any maintenance unless there's
6:06something absolutely major. That's not
6:08factoring your expenses because until it
6:10happens, we're not expending any money
6:11on it. ACs, roof damage, things of that
6:13sort. current expenses that we have are
6:15the loan payment, $3,304.34,
6:18our property taxes, $614.08
6:21per month, insurance, $416.66
6:24per month, and the management, $436.50.
6:27When you add up all of these expenses
6:29and subtract it from this revenue, we
6:31have $2,503.42
6:34per month of net cash flow that we are
6:37putting in our pocket. This deal
6:38required no money out of our pocket.
6:40We're making an infinite percent return
6:42just by pushing papers. When the time
6:44comes to refinance, we have two options.
6:46Number one, if we want to get our
6:48partner, the people that put up the
6:49money right here in this down payment,
6:51out of the deal, we can refinance for an
6:53amount that would pay off them and their
6:55money that they put in and pay off these
6:57sellers on the seller finance and then
6:58just have it all wrapped up in a bank
7:00note. Or, if we want to keep this person
7:02or this group in the deal, all we have
7:03to do is refinance to get out of
7:05whatever the remaining balance would be
7:07in 1, 2, or 3 years depending on how
7:09long we want to carry this note with the
7:11sellers. The reason I have property
7:12taxes and insurance listed here is
7:14simply because our tenants are not
7:15getting the property taxes or insurance
7:18in their name. That goes in our name and
7:20under our company. We pass these
7:21expenses off to them and it's reimbursed
7:24through the $1,275
7:26added into this lease. That money is
7:28already reimbursed in the revenue that
7:29is generated at the top here. We have a
7:31lot of options with this deal. We can
7:32keep this note, let this sit as it is
7:35for as long as we want because we have
7:36this on a 25-year amortization term. Or,
7:39we can go back to a bank, cash out
7:40whatever this would be. If you don't
7:42have an amortization calculator on your
7:43phone, I recommend getting one. This is
7:45going to allow you to run numbers very
7:47quickly. I'm pulling up an amortization
7:48calculator right now. I'm going to type
7:50in this loan balance right here,
7:51$493,750.
7:53The loan term, 25 years. And then that
7:55spits out a payment, $3,304.34.
7:58When I want to figure out where we're
8:00going to be, let's say 2 years, which is
8:0124 months, I can click on a button on
8:03this app that just says monthly
8:04schedule. Now I can look and see in
8:06month 24, our remaining loan balance
8:08because every time we make a payment,
8:10it's making a payment towards principal
8:12and it's making a payment towards
8:13interest. I know that in 2 years, if I
8:16want to go back to a bank and refinance
8:17this property, in month 24, I'm going to
8:19have a remaining balance of $384,552.32.
8:24So if I'm going to go back to a bank and
8:25cash out the sellers, I'm going to get a
8:27bank loan against this property for
8:29$384,552.32.
8:32In that scenario, our interest rate is
8:34going to drop because we're not going to
8:35be paying 9% interest, so our payment is
8:37going to drop and that's going to
8:39increase our profits.