Why High Cap Rates Are Risky in Triple Net Investing

Most investors look at a higher cap rate and think they found a better deal.They haven't. They've found a risk the market is pricing in -- and if they don't understand what it is, they'll feel it on the exit.Welcome to Commercial Connections. I'm Rene Nelson, CCIM and commercial real estate broker. I help investors buy triple net properties like Dollar Generals, Jack in the Box, Circle K stores, and similar assets. I own a Dollar General myself, so I understand the appeal -- and the questions -- because I've been in your shoes.In this episode, I build on our last topic about how lease term drives pricing and go one level deeper. I'll show you exactly how a higher cap rate can be a gift and also a warning sign, give you a five-point checklist you can run on any offering memorandum, and walk you through the 60-second three-timeline test I use before advising on any deal. 🧠 WHAT WE COVERWhat cap rate actually tells you -- and what it does notThe five warning signs a higher cap rate is signaling real riskWarning sign 1: Lease term is getting shortWarning sign 2: Lower liquidity in thin trade areasWarning sign 3: Priced for a quick buyer, not a long-term ownerWarning sign 4: Lease structure friction to watch forWarning sign 5: Bond pricing on non-bond riskWhen a high cap rate actually makes senseThe three-timeline test you can run in 60 secondsHow to screen, underwrite, and align your exit from day one💌 STAY AHEAD YOUR WAYWant smarter insights, market trends, and strategies delivered to your inbox? Join the Commercial Connections Newsletter. 📅 BOOK A CALLIf you're evaluating triple net properties and want help applying this framework to real deals, I've created a free guide called How to Buy a Triple Net Property. Download the PDF, review it, and schedule a free 15-minute discovery call. We'll walk through your goals and decide what level of term and risk fits for you.Schedule a strategy call: eugene-commercial.com 🔗 CONNECT WITH MEFree Triple Net Property Guide + Discovery Call: eugene-commercial.com Eugene-Springfield Apartment Market Snapshot: go.eugene-commercial.com/eugene-springfield-market-snapshot University of Oregon Apartment Market Snapshot: go.eugene-commercial.com/uofo-market-snapshot 0:00 -- The most expensive mistake new triple net buyers make0:35 -- Who Rene Nelson is and why she owns a Dollar General herself1:20 -- Why this episode builds on lease term and goes deeper2:20 -- Plain English: what cap rate actually means2:40 -- How the market prices risk through the cap rate3:00 -- Three numbers to focus on in any offering memorandum3:25 -- The one question every buyer must ask before closing3:45 -- The truth: you are buying a contract, not a promise4:05 -- Warning sign 1: Lease term is getting short5:05 -- Client story: buying a short-term portfolio and riding the wave5:25 -- The timeline trap: buy at 6 years, sell at 36:35 -- Warning sign 2: High cap rate because liquidity is lower7:15 -- Warning sign 3: Priced for a quick buyer, not a long-term owner7:50 -- Warning sign 4: Lease structure has friction8:45 -- Warning sign 5: Bond pricing on non-bond risk9:10 -- When a higher cap rate actually makes sense9:45 -- The three-timeline test you can run in 60 seconds10:25 -- Why Rene owns a Dollar General herself11:00 -- Three-step process: how to screen and underwrite a deal11:25 -- Free guide + discovery call: eugene-commercial.com12:00 -- Final thought: buy the term that fits your goals