I was talking to a broker On a cold call about residential rental units, exchanges, and then he mentioned triple net properties.

Anyone doing this? I like to toss it around discuss the pros and cons.

I looked into this a little. My concern as a potential investor was:

--what happens after the five-year expiration period? It pushes all the risk onto me.

--how do I know that I'm not overpaying for properties?

--is that rate of return really as low as you say?

Triple net properties are great investments for commercial investments. Most chain stores and stand alone franchises operate that way. I know investors that just purchase and do not even do lease administration. They have other companies that hand lease matters. Some of these investors are foreign. I had a tough time locating one owner for a friend of mine to whom I sold a triple net building. That owner was located in Germany. There are many European investors in the USA because of our rate of return is much better and they pay less taxes here as well.

Here in Pennsylvania I have seen returns like 10-12% per annum. IE $300K stand alone convenience store rents for $2500 a month or $30K per year. Owner does not pay any taxes, insurance or maintenance. They use a complex commercial lease with yearly increments related to inflation etc.

Most long term investors that branch out eventually end up owning several triple net properties. (1) The trend starts out owning a single family home or duplex/triplex. (2) Then we move on to commercial residential properties - 5 units and up. (3) After owning larger apartment buildings (16 units and up), with a residential manager on site -- we look for something easier to manager.

This is where commercial properties like: (a) a single tenant triple net like a fast food chain comes in. (b) a small retail strip mall like 3 to 10 tenants.

With a single retail tenant, they are responsible for almost everything.

My first triple net property was two tenants. A Medical clinic and a CPA firm. My second was a single tenancy, a drug store chain. I provided the lot and they build the structure with a 20 year fixed lease and 1 ten year extension. My third was a strip mall with 5 tenants: 7-eleven chain, laundry mat, pizza place, bike shop and phone store.

Any time I purchased an apartment property, weather it was a duplex, triplex, 4 units, 5 units, 8 units, 10 unites, 12 units, 15 units, 16 units or up -- it only took between 1 day to 1 month to find a tenants.

With commercial triple net properties (retail or office), it took me between 3 months to 1-1/2 years to find an acceptable tenant. So do the math. You have to have the where with-all to carry a triple net commercial property -- not beginners with little cash saved up or lots of expendable income.

I have looked at triple net as a possible next step. Obviously, the primary pro is the management aspect. Just sit back and watch the money flow into your bank account.

Thank you one and all for your input. Much appreciated! I wanted to know a little bit more about Triple net properties. It is an interesting property type.

Robert J -

I started out in 1996 with 2 multi- dwellings. A 10 unit and a 4unit.

I had no prior exposure to the rental market.

My first home that I owned was a mobile home a 1 bed single wide. I was 18.

II bought my first stick house 2 bedroom at age 27 for my personal Home

Around May of 1996 I began looking for 2 or 3 multi-dwellings.

I decided to sell my personal home get another and 2 multi’s.

Bought my home in October 1996. The 4 unit in December 1996. The 10 unit in January 1997. I still have those properties today.

The Idyllwild cabin came from my brother. He asked Mom and I to go in on it with him when he divorced. We did. That was about 1990 I believe.

I haven’t had a desire to invest in a larger multi because I would need to have a in house property manager. I don’t think I could be confident in a in house manager. I do it all. The repairs the paperwork. Screening.

I have a passion for this business. However I would like to have an exit plan that includes moving to Fiji opening a dive resort and also offers horseback riding. A childhood hobby that I would love to get back into.