If everyone was to write down the worst nightmare tenant that they’ve ever had, I feel like I had all four of those in that building. And what I didn’t realize was I was basically buying another job. Today we’ve got just over 40 properties and a lot of these properties I don’t even have keys to.

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What’s going on guys? Tom, thank you so much for taking the time and joining us today. I know you’ve been in the business for over 10 years. If there’s one thing that you could credit to your success in the space, what would that one thing be?

Consistency for sure. So especially I would say the last five years, a lot of people got worried with the changing market, changing interest rates and everything else. And we just kind of put our head down and said, “All right, we got to stay in the game. We got to stay active and stay consistent and figure out the deals.” Just because the market changes or interest rates change, it doesn’t mean the world just stopped working all of a sudden. So it’s like, well, some people are doing deals. We shouldn’t be sitting on the sidelines and just sitting on our hands and doing nothing. There’s still deals out there. It’s just a lot harder to find them. And so what we’ve seen is just being consistent allows us to continue compounding over time.

And how’d you get into the business in the first place?

Reading books of like, all right, most millionaires are investing in real estate. And my main business, I’m an entrepreneur is 1-800-T-shirt. So we were growing the T-shirt business and I was like, “All right, I got to start building up some passive income. So at some point if I want to retire, we’ve got a cushion here, we’ve got some other stuff coming in. ” And I started out with a fourplex and bought that on contract. And what I didn’t realize was I was basically buying another job. It was a lot of work. I think if everyone was to write down the worst nightmare tenant that they’ve ever had, I feel like I had all four of those in that building. It was just like one thing after another between the basement flooding to dealing with a hoarder to getting police phone calls at 3:00 AM and just all sorts of crazy stories in the first year. And my wife was like, “I do not think this is not what we signed up for, ” type of thing. And so then I discovered commercial real estate and triple net lease with national tenants and being a business owner, I was already used to working with business owners. And so it made sense for me to pivot from this fourplex into commercial real estate because I just knew how to talk the talk with business owners. And I liked having business owners as tenants versus people who I couldn’t trust were going to pay rent and everything else. It was just like I just didn’t want to deal with those types of tenants anymore.

Yeah, for sure. And then for the people listening, what does your business look like today?

Today we’ve got just over 40 properties and that is a mix of single tenants and multi-tenants. So when I say focus on commercial and triple net lease, a lot of people don’t know what triple net lease even means. Triple net lease means that the tenant pays for the insurance, the property taxes, and all the maintenance. So it’s very passive, very hands off. And so our tenants are Starbucks, Arby’s, Applebee’s, Midas Muffler, Staples, Dollar General, those types of properties, leases between 10 and 25 years and a lot of these properties I don’t even have keys to. So when I say I didn’t want to deal with tenants again, I literally don’t have to deal with tenants because the way the leases are structured, they take care of all their maintenance, they take care of the snow and the grass and changing light bulbs and just like everything else. I don’t even have to go to the property. Basically we’re just collecting the rent from them and paying the bank.

That’s awesome. And what was the main problem that you were trying to solve when switching from single family to the triple net?

The main thing was just like our return on … I’m not a very handy person so going to fix stuff dealing with these problem tenants that kept calling at all hours of the day and like just I felt like they were bothering us. And so I’m trying to run my other business or trying to start a family and stuff like that. And so the big switch was just like going from active to passive. And there was like one factor after I did it that I realized that a lot of people don’t factor in when it comes to investing in real estate and that’s return on time, return on hassle and return on headaches. We could look at the numbers and be like, oh, this is a six cap or I’m getting a 10% cash on cash return or whatever the case is. But at the end of the day, if you look at it and be like, okay, I spent this many hours dealing with phone calls and going and fixing this thing or whatever the case is or just the amount of hassle and headaches a few properties can give you. If you’re able to eliminate that, the actual return is much higher. So I think that was like a big shift once we realized that just to go all in and focus on this triple net lease commercial space.

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Yeah. Why do you think so many investors overlook this part?

I just think a lot don’t understand that it’s even available, right? The triple net lease asset class is what I would call like the underground asset class because as you drive down the street and you see the Starbucks or Arby’s or McDonald’s or whatever, there’s never a sign in the front yard of it that says for sale. So a lot of times these are traded off market directly landlord to landlord, sometimes through brokers. And so it’s just not an asset class people even realize I didn’t even know before I got into it. I just assumed the McDonald’s method was McDonald’s owned their real estate. I assumed Starbucks owned theirs and all the companies own theirs. And then after I dove into it more, I realized that McDonald’s actually only owns about 40% of their properties now. And so there’s landlords like me that own McDonald’s and McDonald’s paying them rent. And I also like the stickiness factor of when they’re in high traffic areas and I think back, I’m like, okay, the McDonald’s and the Taco Bell and Olive Garden and everything else that I went to when I was a kid or when I was in high school or in college, they’re still there. And so I’m thinking, “All right, if I invest in this, they could still be there for the next 30 or 40 years.” And so that was just a huge attraction for me to focus on this asset class.

What do you think the most common misconception is about the triple net coming from single family?

I think the misconception is the returns are going to be lower, but banks are very favorable on lending to these because they’re credit rated tenants. So a bank is lending not only on my credit but on the credit of the tenant. And like I said earlier, I would rather give up a couple percentage points difference on whether it’s that cash on cash return or whatever for that return on time, return on hassle and everything else. And also just like I love the long-term nature of these of thinking, okay, they’ve got a 10-year lease or 15 or a 20-year lease with this. That’s kind of like just that passive income that we’re looking for. And most people don’t think about it like as that’s happening, you’re getting the appreciation, you’re getting the debt pay down. So it’s just like this wealth building machine that’s happening in the background as you’re doing everything active. So I always, every time I talk to people in other assets class, I’m like, all right, well, if you really love doing fix and flips and you love single family homes, that’s great. You can continue doing that, but maybe you should try putting, whether you’re doing a 10301 exchange or just getting one of these triple net lease properties into the portfolio just to diversify and just to see what it’s like, eventually over time you’ll be like, “Oh my gosh, this is great.” Not only to have that mix and the diversification, but just to see how passive and to have like what I would call safety net or a backstop on the other properties because you can count on that cashflow coming in every month and if you have some vacancies in the single family space where you might have some volatility where it’s kind of going up and down, this is just that other asset sitting in the background.

Yeah, I love that. What are some key strategies that you guys are using to actually find the properties?

Yeah, so that’s a big one. So we work with some brokers directly to find them, but really we’re Birddogg and similar to wood in any other asset class. It’s identifying the properties that have long-term … We’re not trying to reinvent the wheel or do anything special here as far as … Usually when I talk to somebody about this, they say, “Well, there’s this great piece of land over here and I think we could put up a strip center or develop it or whatever else and then reach out and try to find McDonald’s to be a tenant.” And we’re not trying to do all that speculative development really. What we’re doing is looking for tried and true properties where, like I said, I drive down the street and I’m like, “Okay, that’s the Taco Bell that I went to in high school. It’s still there 20 years later. It’s still probably going to be there for the next 20 years. It’s in a high traffic area of our city surrounded by a dense population. That’s a property I want to go through.” So we’ll do a research and figure out, okay, who owns that now? We’ll skip trace, figure out how to get ahold of that landlord, reach out to them, start the communication, start building a relationship with them and just understand like, “Hey, are you planning on selling this at any point in time? We want to be the first in line to acquire it when you’re ready to sell it, beat the broker basically to the property.” And then like I said, it’s all about that relationship. A lot of times people aren’t ready to sell, they don’t know. But what we’ve been finding in the last couple years is there’s a lot of baby boomers that own these properties. They’re trying to figure out estate planning, they’re trying to just kind of get their retirement and everything in order. They’re in their 80s and stuff like that. And then if a life event happens, that’s the trigger when they’re ready to sell. So someone gets cancer, someone gets divorced, business partner breakup, they’re winding down a partnership, they’re trying to figure out their estate planning. Those are all times when they give us a call and say, “Listen, here’s what’s going on. Here’s what happened. We’re ready to sell.” What

Mistakes do you often see investors make in this space that you think could be really easily avoided?

Not every property, even though triple net lease is, there’s not a ton of due diligence as far as if you were buying a big multifamily apartment complex or something like that, but you still got to be mindful of what’s going on here. So there’s a lot of nuances in the leases. I don’t know if it’s just because lawyers need to justify how much they’re charging, but a lease can range from 50 pages to like 200 pages. So it’s like, what did they sneak into this lease that I got to be aware of? And then just understanding the property itself. Even though we’ve seen businesses come and go, franchises that kind of die out or whatever the case is, the biggest thing is if it’s in a high traffic location, if a business moves out of that spot, is that space going to be highly sought after from another franchise that’s going to be like, listen, boom, that is the prime corner of Maine and Maine in this city. We want to step in and take over that space. So when we’re looking at that, we also want somewhat of what I would call a square box that’s easy to repurpose. So it could easily be a Starbucks, it could easily be a Chick-fil-A, it could easily be a Chipotle, anything like that. What comes to mind is if it’s a Pizza Hut and it looks like the old school Pizza Hut with the roof on it, that’s a little bit harder to redevelop into a new franchise concept if it’s got unique characteristics. Other things are gas stations or carwashes. A car wash, it’s a single service thing that if they move out, you ain’t going to put a pizza place into the carwash. Taco Bell’s not moving into the car wash. So we try to keep an eye out for that and understand the risk involved with those types of properties. And we just make sure like, all right, this isn’t just because it is a 10 or 25 year lease with Starbucks or Arby’s or Applebee’s or someone like that, there’s still potential things that could happen. The risk is probably a lot lower and a lot less volatile than other asset classes, but there’s still things to be mindful of.

Yeah, for sure. I mean, obviously you could put another car wash in, but you can’t put anything else and so it limits that and 100%. What’s something that separates the top operators from everyone else in your experience?

Top operators, it’s a game of just having, I would say the top operators just have a lot more access to capital. So we’re competing against a lot of big private equity companies, life insurance companies, you name it. We’re competing against some very big heavily capitalized companies. With that, they’re looking for larger portfolios, larger type strip centers, grocery store anchored places with Target and different things like that. So we try to niche down to a smaller kind of … We’re looking at the 500,000 to $5 million range and in some cases those properties are too small for the bigger private equity companies that are in this space. The big operators, they’ve got big teams, they’ve got a lot of capital behind them to be able to do stuff, but as small operators, we can still operate efficiently. We can operate locally. So I always like to say, especially in your own local market, if you know that market very well, we focus strictly on Iowa and when we’re competing against even when we’re acquiring from these big REITs or private equity companies, they’re based out in New York or California or somewhere else, most of them don’t even know where Iowa’s at on the map. And so we kind of have a distinct advantage there of not only knowing where Iowa’s at on the map, we know the communities, we know the people that are working and managing these properties, we know the customers that are patronizing them. And so we’ve got a low competitive advantage there. So I think to get that advantage in your local area, yes, we could buy a Starbucks in Florida or I could buy one in Texas or California or really anywhere in the country, but I know the one in our backyard the best because I know exactly what’s happening there every single day.

Yeah, for sure. When it comes to someone in single family, I know you said you like to help the single family people kind of switch over to this when they’re ready for it or just to kind of experience it. What is the exact profile type that you like to help get into the triple net and what is that person? Where is that person in their real estate journey typically?

I would say it’s somebody that’s either kind of just getting tired of the hands-on stuff. So they’re either really busy with family things or they’re getting towards retirement and they’re just wanting to be a lot more hands-off. We’re seeing this a lot with investors between the age of like 50 and 75. They’ve got a nice portfolio of single family homes. They’re just tired of chasing the rent every month, calls, just dealing with like minor repairs. They just kind of want to live the retirement life without being quote unquote on call all the time. And a lot of times people have those portfolios, they’re already paid off, they’ve got their basis paid down. So in some cases they’re stuck in this situation of they’ve got nice cash flow, they’ve got low or no debt, but then they don’t want to sell the property because they’re going to get yanked with the taxes on it. So those are probably the best ones that if you’ve got a property that’s between 200,000 and $400,000 and it’s paid off and you’re not wanting to pay capital gains on that, you could do a 1031 exchange on that towards a million to one to $1.2 million property, a Dollar General and a Dollar General Starbucks and Arby’s KFC, like a lot of these fit that million to $1.5 million price point. So if you’re able to put 20 to 30% down on these, you all of a sudden go from this active kind of whatever work to do to a passive long-term stable asset that you’re able to 1031 exchange into. So then you’re not doing the taxes, you get a new basis stepped up and you get the depreciation again. So now you’re able to write off some of that as well. And so that’s the ideal person is like they’re ready to go from active to passive and have something long-term and stable and be able to do that 1031 exchange without getting hit with the capital gains taxes.

Yeah, 100%. If someone is interested, someone’s listening to this podcast in that realm and they’re interested in getting in touch with you and kind of getting into the triple net space, where can they go to find you and how would be the best way to get in touch with you?

Yes, on Instagram @fastfoodlandlord.

Awesome. Any final advice for investors that are looking to grow, scale or maybe simplify their business?

Yeah, just check it out, especially locally. If you can diversify and add one prime triple net lease asset in your local area that you’re familiar with, that you’ve patronized over a number of years and you know it’s going to be there for a long time. It’s just a nice diversification to have in there and it’s very easy and simple once you get it going. I

Love it. I love it. Well, Tom, thank you so much for taking the time. Everyone, thanks for watching and we’ll see you next time.

Awesome. Thank you.