In this episode, Adam Carswell and Michael Flight talk with Jordan Steck, Liberty Real Estate Fund’s co-founder and Director of Eastern Acquisitions & Capital Markets, to work through the financial analysis of an offering memorandum — the same OM reviewed in episode NNN005. (To follow along with Michael, Adam and Jordan, watch the video HERE to see them actually going through the offering memorandum!)They discuss the key assumptions that are important when evaluating the economic feasibility of a real estate investment. Jordan also points out the annual cash flows and how to get to different levels of income as well as understanding what the different returns are of the Triple Net property and how to get to those returns. They wrap up this episode with an emphasis on the importance of evaluating the taxable income that Triple Net properties offer investors.
Timestamped Shownotes:
01:55 – Adam Carswell and Michael Flight, CEO and co-founder of Liberty Real Estate, introduce Jordan Steck, Liberty Real Estate Fund’s Director of Eastern Acquisitions & Capital Markets and co-founder
04:45 – When do investors conduct a financial analysis for a potential Triple Net (NNN) investment?
05:28 – Why do investors need to look at the financial model of a net lease property after its offering memorandum?
06:09 – What is the difference between an investor’s asking price and actual acquisition price?
06:40 – What other expenses and costs do investors incur when processing a net lease investment?
07:39 – What is the all-in basis, or all-in purchase price?
07:50 – Why is the square footage of a Triple Net property a key factor in evaluation?
08:38 – How do construction costs and replacement costs affect the understanding of a property’s price per square foot?
09:46 – What is Gross Leasable Area (GLA)?
10:47 – Why should investors note the age of a Triple Net property as well as any renovations and the type of the lease term?
11:16 – What is the Capitalization Rate (cap rate) of a real estate property?
12:08 – What factors change a cap rate?
13:25 – What are some examples of businesses that have higher cap rates versus lower cap rates?
14:32 – How does the creditworthiness of the tenant affect the cap rate of a net lease investment?
15:29 – Why does higher market performance affect cap rates?
16:29 – How can leveraging a property and acquiring debt actually benefit investors in the long run?
19:08 – Why does a lower interest rate benefit net lease property investments?
20:21 – Why must investors evaluate the annual rent of Single Tenant Net Lease properties?
20:52 – What is a vacancy factor and how do net lease properties maximize efficiency?
22:39 – What are the typical expenses of Triple Net investments for tenants versus investors?
25:15 – Why compare the purchase price of an NNN property with its property taxes?
28:29 – What are the benefits of real estate investments for tenants and beyond?
30:50 – How do investors calculate the annual cash flows and respective return metrics for Triple Net investments?
32:15 – What are debt services and how do investors interpret them for loan deals?
35:32 – What is levered cash flow?
36:31 – How do investors calculate a debt service coverage ratio?
38:25 – What is a debt yield? Debt per square foot?
40:00 – Why must investors apply a growth rate to the cap rate to determine the sales price, or reversion value, of a Triple Net property?
41:14 – What is the Internal Rate of Return (IRR) of a net lease investment?
42:55 – What is the cash-on-cash of an investment?
43:39 – What are the differences between the IRR and the cash-on-cash?
44:22 – How does the reversion value affect the IRR of a net lease property?
47:26 – What is the Equity Multiple and how does it show investors the optimal hold rate?
48:54 – Why should investors evaluate the taxable income of a Triple Net investment?
54:11 – How can investors contact Jordan, Michael and/or Adam?
Key Points:
1. How to Evaluate the Financial Model of Triple Net properties
2. Net Lease investments generate wealth and passive income
3. Net Lease investments have tangible and intrinsic value as a hard asset
4. Importance of the Capitalization Rate of Triple Net properties
For more information contact us here and mention Nothing But Net or simply NNN:
For more information on:
Liberty Real Estate Fund LLC (https://libertyfund.io/)
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