valuations - Posted by bill

Real Estate Investing Triple Net Leases
1

Posted by BILL HUGHES on July 29, 2009 at 08:49:10:

here is where we are at:
we own the restaurant and have a 5 yr lease with 3 5 yr options - it’s triple net with annual cpi increases
current rent - $ 5250 / mo - single tennant free standing building
based on an income approach, it comes up around $ 525,000
how else should i look at it?
thanks

2

valuations - Posted by bill

Posted by bill on July 09, 2009 at 10:00:04:

we are looking to make an offer on a commercial building
and would like some input on setting our offer price.
details are as follows:

2 story brick bldg - 6000 sf total
single use - single tenant - restaurant
current lease - $ 5,250 / mo nnn - 5 year term
with 3 - 5 year options - annual increase tied to cpi
increases

we are also negotiating the purchase of the restaurant
if that makes any impact on the evaluation

thanks

3

Re: valuations - Posted by ray@lcorn

Posted by ray@lcorn on July 15, 2009 at 11:30:24:

Bill,

My best advice on income-property valuation is here:

http://www.creonline.com/articles/art-216.html

Restaurants are my least favorite tenants because they are so vulnerable to competitive pressure, economic issues and mis-management. We do have restaurants in our portfolio, so my bias does not extend to avoiding them completely.

I typically ask to for personal financial statements from the principals as well as the entity, and require personal guarantees. However since this is an existing lease you are stuck with whatever the current owner got. You don’t mention how long they’ve been in business. If it’s a short time I would ask for sales and financials to establish their viability.

Also, be sure to evaluate the property by general real estate standards, i.e. the “dirt factors” mentioned in this article:

http://www.creonline.com/articles/art-286.html

ray

4

Re: valuations - Posted by DMcGehee.Sf

Posted by DMcGehee.Sf on July 10, 2009 at 24:32:00:

You need to give a lot more information to get any useful feedback.

Location? Quality of the tenant? current market conditions? are you in an earthquake state or does brick make little difference?

What others value the property at is not necessarily meaningful to you. What are your investment objectives (ie. hold, return, risk etc)?