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I don’t do NNN, but I would assume it’s all in the lease. If the landlord needs to pay for roof / structure, underwrite it like anything else. If the tenant pays for roof and structure, the landlord still needs to understand the cost in case the property goes dark.
You would need to understand your worst case scenario.
Assuming the landlord pays, you could reserve for the cost monthly, or not, it depends on how the deal is structured. Even when purchasing NNN, you should still get the standard PCA and third party reports - speak with a roofing specialist and contractor to understand costs.
Should be clearly stated in the lease - at times, roof repairs can be passed through to tenants in a net lease, but unless you're looking at a truly absolute lease, roof replacement and structural items most often fall on the LLD. Depending on the extent of the cost and similar to any major capital item, even if an anticipated roof replacement does not fall within your projected hold period, I'd deduct the NPV of the future roof replacement as a potential buyer will take that into account in his CF's when you look to exit.
don't forget you have to pay for the roof inspections even though the tenant will have to pay for the repair
My apologies everyone, I meant to write NN instead of NNN but spell check corrected it. If the LL is responsible for roof and structure how would you underwrite that? Is there like a PSF replacement reserve I can assume if it’s relatively new construction?
which property type?
Various. I’m looking at everything from 500k SF Amazon warehouses to 3k SF banks in Tier 1a+ markets for around the same price.
Each market is going to be slightly different but I would say your best bet is chatting with local contractors and/or guys who specialize in roofs. This way you get an accurate/ best guess estimate instead of a random best guess.
If it's a 50mil pvc/tpo, count on 15-20yrs of longevity with annual maintenance before you need to replace. Last few years will get quite a few call outs during rainy season. Each call is fixed cost of about $500-$800 depending on leak size and locations.
In a NNN lease, the landlord can still be responsible for the roof. If the tenant pays, it’s just considered absolute. It’s just semantics I believe. Everyone has their own interpretations.
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