When purchasing a triple net lease investment property, the investor may be able to develop an advantageous buying strategy based on the profile of the property seller.
Real Estate Developer
Purchasing a triple net property from a real estate developer offers a variety of advantages to the investor. In this scenario, the developer has done much of the legwork already. To obtain project financing, the developer has to secure a good tenant, which typically will have required a full range of due diligence and project proforma evaluations. The investor literally needs to do little more than show up at the closing table with his funds. The downside is that the investor likely won’t get much of a deal, because the developer knows the value of the property and will likely have a healthy amount of interest in the investment.
Owner/Investor
The owner/investor seller profile will be very familiar to the investor, as this is likely an individual or investment group with very similar goals and sensibilities to the investor’s own. This seller profile is the hardest to quantify, as the investor may not easily determine the seller’s motivation. Truly, the seller may simply wish to realign their investment portfolio or they may need access to the cash they have tied up in the property to seed another opportunity. Or, the investment may not be panning out as expected, the tenant may have plans to leave, or the surrounding area may be on the decline. This seller profile will typically be tight-lipped, especially if their reason for selling is some kind of difficulty with the property. The investor will want to do his own due diligence before proceeding with this purchase.
Owner/Tenant
This seller profile provides a variety of unique opportunities for both the seller and the investor. This situation arises when a business concern owns their own facilities but needs to access the equity from the property. Often, the seller’s motivation to cash out on their real estate is business expansion or some sort of growth opportunity. Conversely, the motivation could also be that company cash flow is tight and the money is needed for operations. Either way, the company seeks out an investor to purchase the property, then leases it back under a long-term triple net lease scenario. This arrangement is often advantageous to the investor, as long as he conducts ample due diligence on the seller’s financial stability and long-term viability.
Bank, Mortgage Company, or REO Servicer
This seller profile was fairly rare until recently. When a property owner cannot keep pace with the financial instrument secure by the property (typically a construction and/or commercial mortgage loan) the lender either forecloses or the owner surrenders the property through a deed in lieu of foreclosure. On occasion, the property has a tenant in place that wants to stay. More often however, the old owner was the tenant and has since vacated the property. Depending on the unique situation of each property, the investor may be able to negotiate an advantageous purchase, as the financial institutions are typically motivated to get the property off their books. As the property seller, they will likely not offer the buyer much in the way of concessions or other incentives more often found when negotiating with traditional sellers.