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Isaac Gutman
May 24, 2020

Real Estate mogul Isaac Gutman Talks Triple Net Lease Investment (NNN) Properties

Isaac Gutman is a leading entrepreneur and real estate expert with over a decade of experience in the real estate sector in NYC, Bronx, and the immediate New York tristate area. He is the Founder of Bronx based Ryer Real Estate Group. Isaac Gutman’s portfolio under management contains retail, industrial and multifamily properties, as well as other significant assets around the east coast. 

Isaac was first attracted to real estate after drawing inspiration from famous real estate investors like Stanley Chera and Ted Lerner, which led him to start working in the field and ultimately opening his firm, Bronx-based Ryer Realty Group. Isaac was responsible for developing and acquiring deals and implementing numerous broad-based, innovative, and long-term strategic projects like starting his own management company and offering other real estate services. Isaac Gutman remains one of the most important names in the industry, with a keen interest in corporate social responsibility. He also created the ‘Bronx Rising Star Foundation’ and explored comprehensive management and corporate training with initiatives like ‘Regional Environmental’ and the NYC Council for Arts. 

For over a decade, Isaac Gutman has been able to develop an approach to real estate that maximizes his clients. Isaac Gutman started his firm after working with some of the best and most reputable names in the industry. Over the years, he has learned a lot the ups and downs of the market, culminating in the real estate recession in 2008.

Nowadays, more than ever, investors are looking for more NNN lease properties. For some reason, many investors seem to think there isn’t much risk associated with these investments. While considering that way makes sense at first glance, the real problem with NNN lease properties is that nobody knows where interest rates will be in the next few years. If you’re looking for security, consider making mortgage terms that run the same conditions as your lease. 

It’s not uncommon to calculate the expected return of a potential property when you are looking into NNN lease properties. While it’s usually straightforward to figure out the expected return, many investors overlook the associated risks with NNN lease properties. 

The first risk you’ll have to address when it comes to NNN lease properties is a vacancy, especially when only one tenant is renting out the building. Most of these types of properties are either fully occupied or entirely vacant, depending on the business. As soon as the company leaves the facility, you are no longer collecting rent, and since you are the owner, you’ll become responsible for maintenance, insurance, taxes, and paying all of the bills. 

It can be difficult for an investor to repopulate a building with a single tenant, like a former Burger King. Your best hope would be to lease the building to another fast food entity. While this sounds like a simple solution, it’s much harder to accomplish. There are usually reasons why the former chain left the property, and it could have something to do with the building’s location. With that point, we are onto another risk factor, which is location.

The location of your NNN lease properties does matter exponentially in this business. Depending on where your business is located, it can be challenging to rent out a vacant NNN lease property that housed a Tractor Supply in the past will be very difficult to lease for the same amount of money. 

If the location is in a large city, you’ll still need to worry about your building area. You’ll need to think about how much the next leaseholder might be willing to pay after the Applebee’s that’s leasing your current structure is gone in two years. 

If your NNN lease property is in a great location and for some reason, your tenant’s business goes under, or the tenant leaves and doesn’t renew the lease. It can still be challenging to rent out your property even if other tenants express their interest in the building. After all, if your building used to house a Wendy’s, you aren’t selling generic real estate. 

There’s also a considerable risk associated with interest rates when discussing NNN lease properties. NNN lease properties are sensitive to interest rate fluctuations. However, many investors still think of NNN lease properties as “mailbox money,” or a fixed-income investment instead of a real estate investment. It’s easy to make this assumption since you might have a significant tenant, like Walgreens, making rent payments to you if that company is leasing out your building. 

NNN lease properties resemble bonds in the way they work. You’ll get a series of fixed payments over a specific time frame when you lease your property. Similar to bonds, when interest rates go up, the value of your NNN lease property will go down. Unfortunately, that’s just one of the essential points of finance. Because NNN lease properties used a fixed rent formation, they can easily be affected by fluctuating interest rates compared to some other types of real estate investments. 

Remember when people are reassuring you that interest rates will stay low for another ten years, that’s not something you can count on necessarily. Unfortunately, nobody can guarantee that interest rates will remain low. 

Another mistake many NNN lease property owners make is assuming that since a corporate brand is renting out your building, you won’t have any problems. However, you’re merely buying into a false sense of security if you’re thinking that way. Remember, just because you’ve got a Wendy’s leasing your building, it doesn’t mean that Wendy’s is paying the rent. When you lease a company store, your lessee is usually a subsidiary. Typically, the larger parent company has nothing to do with making rent payments. So, there’s no guarantee that just because a primary brand name is leasing your building, that you’re going to get your rent payments on time. 

Don’t forget to assess your potential tenant’s ability to pay the monthly rent before you lease your building. Tenants that seem to have secure credit can also be lying to you. It’s not that difficult to get a limited liability company so that you can sign the NNN lease on a property even if an individual has bad credit. If your tenant is an LLC and has no assets, then the company could be shielded from also honoring the lease agreement. 

So, you’ll need to ensure that if a tenant leaves before the end of your lease, you can find another entity that will be happy to take over the old lease terms. That’s one of the best ways to avoid some of the risks we see with these properties.

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