Sunday, August 2, 2009

Cash Flow Kings II

In my last writing, I attempted to paint a picture in your mind of being a landlord of a single family house offering residential property for rent with yearly leases (maybe you own a duplex or triplex). This time I will attempt to paint another picture in your mind on a commercial property.

Imagine that you just drove up to a Burger King (Wendy’s, McDonalds, KFC, etc.) and ordered food in the drive thru… while looking at the property you noticed that it has been totally remodeled inside and out with all the latest flat television screens, computer monitors and professional landscape, when you went inside you observed new floor tiles and beautiful framed pictures, etc. Let’s say in all you quickly calculate around $250,000 worth of remodeling done on the property. [BTW- this building could very well be a Payless Shoe Store, Jiffy Lube or a bank].

Oh… and did I mention, the building is yours! Burger King is merely renting the building from you for the next twenty or so years, with options of two or more five year periods. (let’s say approximately 30 years).

DYK? (did you know) - You don’t have to worry about running a Burger King! Nor do you have to worry about managing the employees, scheduling their vacation(s), payroll or anything related to running that business. If the plumbing fails, you don’t have to fix it, but they (the tenant) do, if the windows or doors break you don’t have to fix it, but (they) do! That’s right you’re not responsible for paying nada! They pay to fix everything themselves, including the $250,000 worth of improvement(s) done on your property!! All paid for on their (Burger King, Jiffy Lube , Payless, etc)’s dime and guess what? Not a penny out of your pocket!

Starting to get the picture yet? That’s right, you have a major lease guaranteed by a major corporation that pays you monthly, on the first of every month, by bank wire, on time, all the time, for the next twenty to thirty years (and sometimes even longer). You are responsible for nothing, they are responsible for EVERYTHING!

I have even seen some of my client’s contracts nationwide declaring in the lease, if the property is destroyed by fire or natural causes, the tenant must continue to pay the lease before, during and after the property has been rebuilt. BTW - guess who’s responsible for rebuilding it? That’s right the tenant… Again you are totally hands off! Let me see just one of your residential tenants in a single family home do that!

In fact, the only thing that you have to do is collect the rent every month (average rent about $7000 to $14,000 a month for the average fast food restaurant). FYI- (for your information) these tenants payments come to you, by way of bank wire, directly to your bank account (smile) and your tenant also pays the sales and property tax, that you will forward to the State.

Deduct the mortgage usually around $2500 to $6000 a month to pay your bank. The rest is all yours! The average NOI (Net Operating Income) is usually between $84,000 to $168,000 annually… now subtract approximately $30,000 to $72,000 for the mortgage (or DS aka Debt Service) to be paid to the bank giving you an average cash flow of $54,000 to $96,000 annually, on one property! Average Debt Service (monthly mortgage payment) will depend on the deal you made with your mortgage professional or banker.
Did I mention rent bumps = Increases in rent over the next 30 years?

If you can afford to buy a $500,000 or above house then you can afford one or more of these types of commercial triple net lease properties.

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