Building a $65M Real Estate Portfolio with Triple Net Leases

Christian (00:00.821)
Hey everybody, welcome to the show. Today I am joined by Tom. He is a real estate investor who has scaled his portfolio from zero to $65 million in assets under management. That’s an impressively short amount of time. His expertise lies in triple net lease real estate. So that’s actually a strategy that allows investors to generate truly passive income while building long-term legacy wealth. So Tom is on a mission to simplify commercial real estate investing.

making it more accessible for those looking to escape the grind, right? To achieve financial freedom. So Tom, we’re going to dive into your journey today. Super excited to have you on my friend. Why don’t you just introduce yourself to the audience? You know, talk a little bit about your background, how you got here, and we’ll take it from there.

Tom Rauen – Fast Food Landlord (00:44.172)
Yeah, sure. Tom Brown from Dubuque, Iowa. And I started, I’m an entrepreneur at heart and started my main business, 1-800-T-shirts.com in my parents basement 20 years ago. And as we built that business up, I was looking for other ways to, one, minimize taxes, two, create passive income, and then number three, build wealth over time.

And, know, with those three things kind of working hand in hand, the compound effect or the snowball effect of that is kind of wild to see. And so we started on this kind of side hustle of real estate about 10 years ago, and it took a, it took a little bit of time to figure it out. And, but once I got the formula figured out, we really just kind of.

put the foot on the pedal the last couple years and started scaling it up.

Christian (01:44.245)
That’s incredible. That’s incredible. So I’m curious. I mean, why triple net leases though, right? I mean, it’s obviously your bread and butter, but why triple net lease compared to any other type of real estate.

Tom Rauen – Fast Food Landlord (01:56.384)
Yeah, so with my main business that I’m running the day to day, you know, the nine to five, essentially, I needed an asset class that was very passive. We start off our very first property was a Fordplex. And what I would say, like,

I don’t even call it a class C property. It was like a class Z property. Like it was probably the worst possible fourplex I could have ever purchased. dealt with if you could ask like everybody’s nightmare story of owning multifamily, you could combine a hundred different people’s stories into one story. And I had all those things happen in one year. And so it was like complete disaster. And that made me quickly realize like I don’t

have time to be dealing with tenants and trash and like all the crazy phone calls in the middle of the night and chasing down rent and everything else I dealt with in that year. And so then I discovered Triple Net Leases, which typically is national tenants, high traffic locations, just like prime real estate, the best real estate in any city. These tenants have 10 to 25 year leases.

We know that they’re going to pay rent on the first of the month every month. So we’re talking about Starbucks, Arby’s, Applebee’s, Staples, Midas Muffler, nationally recognized names with credit backing behind them, corporate guaranteed leases. And then the triple net aspect of it is the leases are written. So the tenant is covering the property taxes, the insurance and all the maintenance. I don’t even have to go to these properties.

or touching anything or fixing anything. So once I learned about this side of real estate, I realized like really fast that was specifically where I had to place my focus so I could continue to focus on, you know, being an entrepreneur and on our main business while, you know, letting this side of the business happening on more of a passive level.

Christian (04:07.701)
Wow, that makes a lot of sense. So I’m curious, right? I mean, what is your criteria buy box, right? Like how do you select, you know, the property that you’re wanting to, that’s gonna generate a strong return? Like, did you have a mentor that kind of helped you educate you more on the process or this was just kind of just self-taught for you?

Tom Rauen – Fast Food Landlord (04:27.02)
No, just really self-taught and really was designing the real estate business around my lifestyle and what we wanted. So, you know, we’ve got the t-shirt business. It’s basically the nine to five, right? So I was like, okay, to grow in with…

1-800 t-shirts, we’ve got 45 employees and there’s a lot of moving parts. know, we’ve got thousands of customers and every order is different where it’s t-shirts and sweatshirts and jackets and hats and koozies and water bottles and backpacks and all sorts of things, anything you can print on. So there’s a lot of moving parts with this business. So when I looked at the real estate business, I said, all right, how can we make this as simple and as lean as possible?

I don’t want a lot of moving parts. I don’t want a lot of different options or It hard to manage or to grow big team and so we want to keep it lean and we want to keep it simple so the idea was the most amount of revenue and wealth building with the least amount of time and effort so I look at a lot of times when people are investing in real estate they they’re looking at

you know, what’s their average annual return? What’s their IRR? What’s the cap rate? Like all these other numbers, which we look at as well. But two of the big factors and two of big numbers that we look at is what’s our ROH, which is return on headache and return on hassle, and ROT, which is return on time.

Christian (06:06.015)
Yeah.

Tom Rauen – Fast Food Landlord (06:09.92)
Right? So most people don’t think about that is like, what is your effort and time and headache and hassle that goes into each property? Now, that first fourplex we had.

My return on headache and effort in time was absolute disaster. If you calculated that in, it was a negative return. No matter how much money we made, it was negative. And you even see that with some people that get into fix and flips and some other big projects and stuff like that, even new development. The return on effort and time by the time you’re managing a whole staff and team and you’re dealing with delays and headaches and all these unforeseen things.

things that pop up, that stress, that’s like all this stuff. So I was like, I don’t want that. I want to design this so I’m not dealing with phone calls on nights and weekends. I’m not swinging a hammer and trying to fix things or dealing with unknown variables that are out of my control, such as insurance and property taxes going up or having to, you know, repair something that’s going to be, you know, a pretty big expense. So that’s where

I was like, all right, triple net lease. The tenants are taking care of all the maintenance. The tenants are handling all the variable expenses such as taxes, insurance, rising up.

and even utilities for that matter. So we really designed it specifically on like, all right, who are great tenants in excellent locations. We know they already have a track record of being in that spot. So it’s not new construction. It’s not a, hey, we’re going to find an empty lot and put a Starbucks there. It’s like, no, what’s the Starbucks that already has a customer base? You can go to Google and they already have a boatload of five-star reviews. We know that they’re successful. We know they have good man.

Tom Rauen – Fast Food Landlord (08:04.944)
in place and good employees and everything else. So like all signs are pointing to that Starbucks is going to be there for the next 20 years. And so that’s how we’ve narrowed into that niche. Then we narrowed even farther because yeah, could buy a Starbucks or an Arby’s or an Applebee’s in Texas or Arizona or anywhere, but I live in Iowa. And so we niche down to just focus on the state of Iowa.

And that might sound crazy, but just here in our small town of Dubuque, Iowa, which has a population of around 70,000 people, metropolitan area, you grab all the country areas around it, and it’s like 100,000 people, which is, and most people will say that’s like a really small tertiary market, right? But I went…

Christian (08:42.997)
Wow.

Tom Rauen – Fast Food Landlord (08:55.842)
basically through all the commercial properties that are in town and there’s over 250 million dollars worth of commercial real estate in Dubuque, Iowa. And so I’m like, all right, I don’t have to go and invest in Florida or Arizona. Like just here there’s more than enough. And then if I add other, you know, areas in Iowa, such as Cedar, Cedar Rapids, Cedar Falls, Des Moines, Sioux City, things like that, like.

There is literally billions of dollars worth of commercial real estate I can do right here in Iowa. The other thing I love about focusing that niche in Iowa is it makes it really simple. One, for when we’re paying property taxes or invoicing that out to a tenant. Two, when we’re doing taxes at the end of the year with our account and we’re not trying to figure out how that works with other states.

The next one is most time it eliminates some competition because you know if we’re competing on this property against maybe an investor or somebody from California or New York, chances are they don’t even know where Iowa is on the map and so it eliminates a lot of competition.

It’s not bad. Most people will say, yeah, it’s a flower state. I don’t even know where that’s at. But by eliminating that competition, like it just leaves the door open for us. And then the other part is like, we’re very familiar with the neighborhoods, the cities, the type of people that are working there that are patronizing, you know, the stores and stuff like that, or where we have friends and family that are in those areas. So it’s really easy for us to have like boots on the ground and really understand like what’s happening at that

property, how successful it’s been, what’s the likelihood of being successful for the next 10, 15, 20 years and beyond. And having some stuff that you can’t see in a spreadsheet or from a listing online. So that’s some of the stuff we do to eliminate a few risks and some of the underwriting and due diligence that we go through when looking at properties.

Christian (11:04.915)
That’s incredible. That is awesome, man. So I’m curious. mean, how do you structure your financing for your properties currently? like, let’s just say, you know, what other options are available for investors looking to start, whether that’s working with you or just anywhere.

Tom Rauen – Fast Food Landlord (11:19.958)
Yeah, so when it comes to financing, you know, this is different than…

trying to finance a fix and flip or something else. So a lot of times, you know, we’ve done a couple of different ways we’ve done. We’ve worked with sellers to do seller financing or some creative financing on a few deals. We’ve worked with traditional banks and mortgage brokers as well as credit unions. And so it just kind of depends on the deal itself and the way the lease is and stuff like that. But unlike multifamily or fix and flip or even

new development with triple net lease, the lender a lot of times is looking at the credit rating of the tenant as much as they are me personally as the investor. So some banks have specific programs with a credit rated tenant such as Dollar General or Dollar Tree or Starbucks. based on their credit rating, they know like, all right,

What is the likelihood that the tenant is going to go bankrupt or staying business and be able to pay this lease for the next 10 years? And with any lender, they’ve got their portfolio. So in their portfolio, they’ve got single family, have multifamily, they’ve got a wide range of assets, right? And what they want to do is balance that risk with the assets that they have in there. So if a lender

a local credit union or bank, it’s way too heavy a multifamily or let’s say office space, and there’s a big downturn in one of the asset classes, they’re exposed to a lot of risk. So they want to balance that out in a way. with triple net lease, we carve…

Tom Rauen – Fast Food Landlord (13:09.154)
while a lot of other people are focused on other asset classes, we kind of carve that niche out for those lenders and say, hey, do you need any more in this bucket, this lower risk bucket with long-term stabilized leases and stuff like that. And that’s where we can get some favorable rates depending on the lender. So typically, we’ve got great relationships with a lot of local lenders.

But right now with the market changing and liquidity on these different banks and credit unions, we’ve had to reach out and find specific ones that are looking to fill that triple net lease bucket.

Christian (13:48.499)
Very cool, very cool. So what were some, maybe some key turning points that helped you go from like, I mean, when you first started, I mean, obviously now you’re managing 65 million in assets with this, but I mean, what type of systems, what type of operations did you really have to put into place to really, you know, build this to where it is now? Obviously a lot of it is passive, right? Like you and I were discussing offline, but that’s you and just you and your wife, which is incredible. But what, what type of systems operations that you have to put in place to get here?

Tom Rauen – Fast Food Landlord (14:18.924)
Yeah, think having a good tracking system. we’ve got property management system in place now. We’ve got QuickBooks with, we’ve hired a bookkeeping firm, an accounting firm to…

track everything and make sure that we’ve got real clean P &Ls and balance sheets for each property because we’ve got multiple entities depending on who the investors are in each entity. So having a good handle on that where everything’s at, even storing your files. you get files from, depending on the property and the previous landlord.

you get files and they’re named all sorts of different things and it’s kind of a big mess. So what I had to do the last few years is really go back.

look at the files that we have on each property, whether it’s appraisals or closing statements or, you know, phase ones, like whatever the reports are, like basically every piece of paper we got from due diligence to closing and rename them and name them all, you know, in a similar manner. So if I pull up property A, B, C or D, all four properties are going to have the files organized in the same way.

So for searching and so like every lease is going to be it’s going to be it’ll say 01-lease- and then the tenant and then dash the the property address.

Christian (16:01.247)
Mm-hmm.

Tom Rauen – Fast Food Landlord (16:01.422)
So then if I’m going, can just type in really quick, 01, it’s going to pull up all of my leases. And same if I’m looking for closing statements for our accountant, I can put in 07, or I can just type in closing statement, and it’s going to pull up all of our closing statements. So that way we know like on our back end, everything’s organized and we’re not looking and searching and trying to find stuff when it comes time for reporting or, you

So if we go to sell a property, we’ve got it all cleanly organized, ready to go, and an easy to find system.

Christian (16:39.529)
That’s awesome. That’s awesome. So how do triple net leases perform during, you know, let’s say an economic downturn, right? So let’s give like a 2008 example. What should investors consider or even yourself consider? Like how does that work?

Tom Rauen – Fast Food Landlord (16:55.372)
Yeah, so in most cases, so really you got to study the lease and have an understanding is, what does it in the lease? Does the tenant have an out clause of something? Since COVID, now some of the new leases have basically a COVID clause that says, if the government shuts us down or something like that, we can pause paying rent. And so I’m typically looking at those and not wanting to get into those.

leases pre-COVID are going to be better for that fact. But if it’s a corporate-back lease, and I’m sure anyone listening has seen this, but an example is there was a local IHOP that closed down. So great location, the business closed, and they had seven years left on their lease. So…

they’re still paying that lease for the next seven years, even though they’re closed operations and no longer operating the restaurant. And so what a lot of people don’t realize that when they drive by one of these corporate stores, even though the business closed, typically they’re still paying that lease to the landlord. that’s a diff, that’s like something most people don’t even realize about this asset class, because in the case of multifamily, if let’s say somebody has a year lease and

a tenant moves out after two months because they got married or something happened or they moved or whatever and they still have like 10 months left on the lease, there’s no way, there’s no chance that that tenant’s gonna pay the rest of the 10 months, right? Like you’re just screwed out of that. And so the tenant keeps paying it. In some cases,

Christian (18:35.626)
Yeah.

Tom Rauen – Fast Food Landlord (18:43.662)
I hop you know the tenant would reach out and say listen we know we have seven years left on that lease would you let us out at least if we give you an upfront lump sum of you know four years or five years of it and So there’s some negotiation that can happen there Some cases you you know at this point

they’re not operating, you’re still collecting payments from them, you can put the property up for sale or for lease. You could find a tenant to backfill it at maybe a lower rate where, let’s say it’s half off, They’re paying 20 bucks a square foot to get a new tenant in there. You got to advertise that 10 bucks a square foot. The new tenant’s paying 10, you go to IHOP and say, listen, I got a new tenant to…

you know, cover the next five years at 10 bucks a square foot, are you guys willing to cover the other 10? So maybe they’re paying a partial lease knowing that they’re subleasing essentially to the new tenant at a lower rate that lets them off the hook at least on, you know, some of the CAM charges, so the maintenance and utilities and things like that. Plus they’re getting a break on it.

Christian (19:56.222)
Okay.

Tom Rauen – Fast Food Landlord (19:59.726)
or if you sold the property, you get it under contract and once you get it under contract, then you can go back to IHOP and say, listen,

we’ll let you out of your lease early, just give us a lump sum of this four or five years. So then you kind of double dip in a way where you’re getting it sold or you’re getting at least to a new tenant plus able to grab some of that old lease money from them moving out. So there’s a lot of different ways to do it, but unlike other asset classes, it’s not just completely dead in the water.

Christian (20:27.829)
Wow.

Tom Rauen – Fast Food Landlord (20:37.9)
when it comes to that. Now, I do want to say a caveat here because that sounds great. It sounds like, wow, this is amazing. Also understand you’re dealing with big companies who have deep pockets and really good legal teams. even though, you know,

Christian (20:39.039)
Yeah.

Tom Rauen – Fast Food Landlord (20:57.228)
There is good case scenario as it happened. There’s also tenants with legal teams that will drag this out or that will try to strong arm you, especially if you’re just a small operator, not a big entity. So you’ve got to understand who you’re working with and what they’ve done on previous things and how to negotiate properly with them.

Christian (21:07.317)
Cool.

Christian (21:20.445)
I was gonna ask you about that, right? I was asking what’s the downside, right? What are things to look out for? So that definitely answered my question. So that’s awesome. That’s awesome. So let’s say if someone wanted to start investing, you know, in this specific asset class, you know, with you, right? What is the first step they should take to get in contact with you, to work with you? And I’ll let you take it from there.

Tom Rauen – Fast Food Landlord (21:35.181)
Yeah.

Tom Rauen – Fast Food Landlord (21:40.428)
Yeah, so, you we’ve got, you can follow us on Instagram at fastfoodlandlord or you can go to roundcapital.com. You know, I’m also pretty active on LinkedIn and Facebook and, know, typically they just fill out and invest, you know.

investor interest form on our website at roundcapital.com. we get on a call and I just say, all right, what are you looking for? And try to align with what their goals are. Are they looking for passive income? Are they trying to defer taxes? Do they not care about that passive income? And do they just want to grow long-term wealth over the next five or 10 years and build up a big portfolio? So some investors, we’ve

partnered 50-50 on with projects. Some people have come on with our cash flow fund, is just they’re not in on the equity of the deal because they don’t need the depreciation, but they want that monthly…

distribution. So, know, we’re ACH in a monthly distribution into their checking account every single month. And they’re like, yeah, we just want this passive cash flow. There’s some that just they want a quarterly distribution. There’s others that want to, you know, do a long term project where they want to hold it. They want to mimic what we’ve done with our portfolio and how we’ve grown it and say, all right, I don’t really need the cash right now. But

if we can work together and start stacking properties and, oops, sorry, and buying properties that over the long term will create generational wealth. Let me get my light.

Christian (23:30.741)
Thanks out.

No, that’s awesome, Tom. That’s awesome. Yes, definitely guys, reach out to Tom and Tom, you know, I definitely will list all of where people can find you in our YouTube description and also our socials as well. But thank you so much for jumping on the show today and really just explaining all of your knowledge on this space. This is something that was definitely new for me. But I know a lot of people are going to gain a ton of value from this. So thank you for your time and wish you nothing but the best in your future endeavors, my friend.

Tom Rauen – Fast Food Landlord (23:59.221)
Awesome, thank you.

Christian (24:00.613)
Awesome. All right, guys. Well, hope you enjoyed today’s show as much as I did. And as always, my friends, we will see you on the next episode. Have a great day, everybody.