Could anyone help me understand the NNN lease on this property?
https://www.matthews.com/properties/stnl-7-eleven-w-gas-jack-n-the-

What’s the benefit if someone buys a property like this? The NOI is $425k but I feel like the mortgage payment would be more than $425k/yr. So, you wouldn’t literally make anything a year until the property is paid off right?
[{"id": "i93spa7", "text": "Cash buyers have no mortgage payment.", "replies": [{"id": "i940ahb", "text": "But they have opportunity cost", "replies": [{"id": "i942ux9", "text": "I don't really see how opportunity cost is relevant to this discussion.", "replies": [{"id": "i94448m", "text": "If you buy something all cash you can't use that money for something else...what is hard here?", "replies": [{"id": "i948hdd", "text": "Ok. Where in the analysis of this deal would you include opportunity cost?\n\nHow would you quantify it?\n\nDoes the ability for the cash buyer to refinance after purchase and then use that cash to buy something else factor into in? Or would you ignore that aspect?", "replies": [{"id": "i94l4ov", "text": "Opportunity cost as in alternative investments with similar risks. An investor could buy 7/11 bonds if the company issue bonds and compare the NNN yield to  7/11 bonds yields. Another comparison would be buying a NNN retail REIT. This investment would be more comparable if the subject property had similar leverage to the REIT.", "replies": [], "depth": 6}, {"id": "i95jtib", "text": "You measure the opportunity cost of the return on the investment vs the return on all other alternatives.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "i948n3c", "text": "Opp cost is ALWAYS relevant. What?!", "replies": [], "depth": 4}], "depth": 3}, {"id": "i94a7jh", "text": "Everyone has opportunity cost.\n\nCash buyers in NNN deals likely have 1031 money and want a bond alternative with low risk.", "replies": [{"id": "i95hjux", "text": "And depreciation", "replies": [], "depth": 4}, {"id": "i95m673", "text": "Yes but the opportunity cost of not using leverage is kind of counter to what makes RE a good investment. If someone bought this all cash, their missed opportunity would be buying a second identical deal at a conservative 50% LTV.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i93ty62", "text": "If a buyer puts down half, that is 3.85mm. Rule of thumb is around 5k in mortgage per million. That would be 19k a month or 231k a year. 425k - 231k is 194k after debt service or a 5% cash on cash. Not saying this is a good deal, just showing why it may make sense to someone.", "replies": [], "depth": 1}, {"id": "i93u5th", "text": "7 million for a jack in the box in Modesto. \n\nThey are hoping for dumb money.", "replies": [{"id": "i93vpud", "text": "While I agree with you, Stockton Tracy and Modesto rents have gone through the roof over the last few years with Bay Area transplants.", "replies": [], "depth": 2}, {"id": "i94gf56", "text": "Is a 5.5% cap not good for a 15 year term with credit quality tenants? Genuine question as this is pretty much what I\u2019d expect for a deal like this in Alberta\u2026", "replies": [{"id": "i94l5p4", "text": "Lets do 10 min of research. Who is the owner selling it? It is a sale  / leaseback of a gas station, a gas station nowhere near a major freeway. It is $1,200 a foot where nearby comps are 250 a foot. NOI is 425K or $6.20 a foot a month. Would you pay $6 a foot a month to lease a gas station in Modesto?\n\nit is a gas station, which means you are responsible for the environmental cleanup and well as maintaining the surety bonds for the underground storage tanks. \n\nSo for all that downside risk, you get, what, 5.5% return on your money if you bought it all cash. \n\nBut what do I know, it is under contract after 100 days on the market.", "replies": [{"id": "i94tmb4", "text": "I can produce half a dozen sales of gas station / c-stores in secondary Alberta markets at $1,200 per SF. \n\nEnviro could be indemnified by Chevron with them responsible for clean up. Financing it would be an absolute bitch otherwise as no lender would want to be on the hook for that.", "replies": [{"id": "i94vwwp", "text": "1200 Canadian is 930 usd, so you may be onto something", "replies": [], "depth": 5}], "depth": 4}, {"id": "i95n15a", "text": "This is an investment sale, so looking at neighboring sale comps on a per square foot basis is not applicable.  A more accurate comparable would be to identify cap rates of investment sales with comparable tenants, property type, lease term, etc.  \n\nEverything in quoted on an annual basis, not monthly unless you are a residential agent cosplaying a commercial broker.", "replies": [{"id": "i96454j", "text": "West coast dude, it is mostly here get a grip", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "i94l92t", "text": "If you have a 200 million dollar portfolio and don\u2019t want any work it is a good deal. Most smaller investors typically look for a slightly riskier deal that needs more managament but can usually get a much larger return after stabilizing.", "replies": [], "depth": 3}, {"id": "i96sfof", "text": "It was much better when the 10Y was at 1.2% than at 3%", "replies": [{"id": "i973gwu", "text": "Agreed!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i93zur4", "text": "Lol Matthews", "replies": [{"id": "i948e42", "text": "Straight boiler room", "replies": [{"id": "i95hpzq", "text": "RECOOOOO", "replies": [], "depth": 3}, {"id": "i9opuw8", "text": "is matthews just a joke. got a couple buddies who are interning with them. heard it\u2019s wolf of wall street vibes", "replies": [{"id": "i9pq8bx", "text": "It started out okay but really went downhill. Really bad culture where they hire a ton and weed out the non-performers and bosses use public humiliation tactics to get ppl to perform better, so yeah basically Wolf of Wall Street lol.", "replies": [{"id": "i9q65b1", "text": "i turned down an internship from matthews and marcus. trying out some other stuff before graduation", "replies": [{"id": "i9qdy16", "text": "Marcus is fine if you\u2019re willing to grind IMO. their training is leaps ahead of Matthews. It all depends on what you want.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i940pfv", "text": "If the rent is under market by a fair amount, or the purchaser think that something will change in the 15 years left in the lease to make it under market, it could make sense. Make 5% on your cash, plus depreciation, and then be sitting on something good. Or, there could be some barrier to entry like no new gas stations that would make this existing one more valuable. \n\nBut I'd agree, at first glance, it seems like a pretty low cap rate, especially given interest rates right now.", "replies": [], "depth": 1}, {"id": "i953u2p", "text": "I actually know Gavan he is a good dude! In terms of mortgage, it all depends how much financing you need. Lets say for example you put down 50%, here is what the numbers would look like not accounting for expenses.\n\n&amp;#x200B;\n\nPrice\t 7732760\n\nCap rate\t 5.50%\n\nNOI\t         425301\n\nEquity\t3866380\n\nDebt\t3866380\n\nLTV\t         50.00%\n\nIR\t       4.75%\n\nAMO\t30\n\nPMT\t($241,072.18)\n\nCASH FLOW:\t$184,229", "replies": [{"id": "i95cdrz", "text": "Oh, my father is looking to purchase a gas station but not where 711 or someone else is a tenant. He wants to run it himself. I was just trying to see what\u2019s the benefit of triple lease unless you have loads of money sitting in the bank. I understand the return is decent if you have like 50% down payment. Thank you for the numbers.", "replies": [{"id": "i95l8vo", "text": "There are several types of leases, Full Service, Gross, Modified Gross, NN (Net Net) NNN (Triple Net).  Each is a simplified, although at time subjective, way of stating whats included in the Base Rent and any additional charges.  In the case of NNN it usually means the Tenant pays the Base Rent + proportional share of taxes, insurance and CAM.  In some cases, the tenant may even be responsible for repairs/replacements such as parking lot, roof or HVAC systems.  Many investors find NNN leases attractive because its less managment intensive and there is less exposure to fluctuations in operating expenses.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i959pby", "text": "High quality credit tenants command lower cap rates =higher property prices. Lenders are still going to underwrite a minimum DSCR, say 1.20x on a stressed basis. You can then back into how much equity will be required to reduce the loan amount to achieve a 1.20x. Next you can then calculate your various profitability metrics. How do those returns compare to other investments?\n\nKeep in mind, people with an expiring 1031 will accept lower returns to avoid realizing taxes.", "replies": [], "depth": 1}, {"id": "i9816r3", "text": "The benefit of a NNN lease is the tenant is responsible for ALL expenses (might be some exclusions on case by case basis). In the case of these national tenants (7/11, Jack in the Box, Gas Stations), the tenant typically takes on a lot of the property maintenance responsibility as well. So for an out of state or hands off investor, the NNN lease structure offers a lot of convenience.\n\nThe credit rating on these tenants is very high, the 15 year lease term is appealing and the lease structure makes it possible for anyone in the world to own/manage. Can also take advantage of the tax benefits of RE - depreciation, etc.. Demand for this should be high. Take for example a retiree who has $3M of cash - they can keep the nest egg of $3M and live off the cash flow.", "replies": [], "depth": 1}, {"id": "i98q00m", "text": "No lender is making a loan on it unless the property can show positive debt service coverage. You better have a big down payment.", "replies": [], "depth": 1}]