Lesson 02 · 13 min read
Buyer Discovery and the Buy Box
Turn a buyer conversation into a written buy box: criteria, capital, financing, timeline, and the 1031 clock, for NNN and industrial buyers.
A buyer who cannot say what they will buy will not buy anything, and you will tour buildings that never fit. Discovery turns a wish ("something with good cash flow") into a written buy box you can search, screen and price against. Skip it and you learn in week six that the client has a 1031 deadline or that the bank will lend half of what they assumed.
Key terms. A buy box is the written set of criteria a buyer will act on. A NNN lease makes the tenant pay taxes, insurance and maintenance. An owner-user buys a building to occupy it; an investor buys it for income. A 1031 exchange defers capital gains tax by reinvesting sale proceeds into replacement real property, and a qualified intermediary (QI) holds those proceeds so the client never touches them.
Builds on. Lesson 1 covers the buyer agreement signed before this meeting. Course 13, NNN and Net Lease Investing, and Course 17, Office and Industrial/Flex, teach the assets.
The discovery meeting
Book 60 to 90 minutes. Ask the client to bring any 1031 sale contract, a lender letter, and the names of all signers. Ask these nine questions in order:
- What are you trying to accomplish with this purchase?
- What would make you walk away from a deal?
- How much cash goes in, how much stays in reserve, and which lender have you spoken with?
- Is a 1031 exchange involved, and what are the dates?
- Who else signs or has a vote?
- How fast can you close?
- Investor: what is the weakest credit and shortest lease you would accept? Owner-user: what must the building do for the business?
- What have you passed on, and why?
- How do you want to hear about deals?
Translate buyer shorthand before writing anything down.
| The buyer says | Usually means | Your follow-up |
|---|---|---|
| "I want a 7 cap" | High return, no risk | "Which risk will you accept: weaker credit, short term, or a tired building?" |
| "Triple net, so no expenses" | No surprises | "Who pays the roof and structure under this lease?" |
| "I need 20,000 SF" | My space feels tight | "How many pallets, trucks and employees, today and in five years?" |
Set expectations early. Say plainly that good product is scarce, sellers talk to several buyers, and you will send few, relevant deals with an honest read on price.
The buy box worksheet
Complete this table with the client and confirm it in writing, matching the buyer agreement's scope. The site's Investor Match form is a useful NNN-style intake, but it lacks fields for clear height, docks, power and owner-user status, and omits Volusia County, so add those.
| Field | NNN buyer | Industrial buyer |
|---|---|---|
| Asset type | Single-tenant retail, QSR (quick-service restaurant), pharmacy, auto, medical | Small-bay flex, warehouse and distribution, industrial outdoor storage (IOS), light manufacturing |
| Size and price | Building SF, land acres; price floor and ceiling | Building SF, yard acres, divisible SF; price floor and ceiling |
| Target cap rate and return | Going-in cap, cash-on-cash, leverage limit | Cap rate if investor; occupancy cost per SF if owner-user |
| Submarkets | Counties, corridors, traffic | Highway access, labor, truck routes |
| Tenant credit and lease term | Rating or financials, guarantor, term left, bumps, options | Rollover schedule, in-place versus market rent |
| Functional criteria | Corner access, visibility, drive-thru | Clear height, docks, power, truck court, zoning, yard |
| Capital and financing | Equity, reserves; bank, life company, or cash | Equity, repair budget; bank, SBA, seller financing |
| Timeline and 1031 | Target close; sale date, QI, ID date | Lease expiry, move date; same 1031 items |
| Entity and decision makers | LLC name, who signs | Same, plus occupying business |
| Must-haves versus deal-breakers | Ranked list | Ranked list |
Rank the last row. A must-have is not negotiable. A deal-breaker ends a search on sight. Everything else is a preference. Have the client sort each item and read it back.
Ask about the entity. Get the exact legal buyer name, where it is organized, and who controls it, and ask every buyer the same questions. Florida's foreign-ownership rules and the affidavit are covered in Lesson 7.
NNN buyer profiles
| Passive investor | 1031 buyer | |
|---|---|---|
| Credit | Strong tenant, low management | Strong, but may trade some to hit dates |
| Lease term | 10 or more years left | Secondary to closing inside the clock |
| Rent | Steady, fixed bumps | Enough to meet yield and value floor |
| Location | Essential trade area, easy re-lease | Any that meets the floor and the clock |
| Price driver | Yield versus alternatives | Minimum replacement value from the sale |
How expectations get set. Investors anchor to a cap rate seen online. Move them to the market rate for that credit and term, using credit ratings and the NNN tenant pages. Then teach the math from Course 13, Cap Rates and Pricing: price equals NOI divided by cap rate, so each half point of cap rate moves price roughly 7 to 9 percent between 5.5 and 7 percent.
Industrial buyer profiles
| Owner-user | Investor | |
|---|---|---|
| Starts from | The business: pallets, trucks, people | The lease file: in-place rent, expirations |
| Space needs | SF, clear height, docks, room to expand | Whatever re-leases: functional, in demand |
| Value driver | Occupancy cost versus leasing; outgrowing the building | In-place versus market rent; rollover risk |
Owner-users decide lease versus buy first: use the industrial lease vs. buy calculator and Course 07, Lease vs. Own. Size the space with the warehouse space calculator; check three-phase power. SBA 504 is for owner-users only, and it carries an occupancy rule and program terms that change, so get the lender's written requirements (SBA 504 lesson; Lesson 7 covers the loan families). Investors need Course 17, Industrial Investing Fundamentals and Flex and Small-Bay; IOS buyers, Industrial Outdoor Storage. Browse the industrial property page.
Capital and financing reality check
Ask, then verify: cash and down payment; reserves and liquidity left untouched; credit and willingness to sign a personal guaranty; which lender and loan type they have spoken with. Banks fit smaller stabilized deals and owner-users. Life companies and CMBS (commercial mortgage-backed securities) lenders often favor larger assets. Terms vary by lender; match type to deal with Course 11, Financing and the Capital Stack, and the lender directory.
(a) Situation: The buyer says financing is "no problem" but names no lender. "[Name], Can you introduce me to the lender you would use, or send me a term sheet or pre-qualification for a deal like this one? Once I have their loan share and coverage rules, I can search at your real price, not a guess."
A quick affordability method. The loan constant is annual debt service divided by the loan (8.29 percent, or 0.082909, for 6.75 percent over 25 years, illustrative). DSCR is NOI divided by annual debt service.
| Start from | Formula |
|---|---|
| Equity | Maximum price = equity ÷ (1 - loan share) |
| Payment budget | Maximum loan = annual payment ÷ loan constant, then add equity |
| Lender coverage | Maximum loan = (NOI ÷ required DSCR) ÷ loan constant |
Run every applicable test and take the lowest. Lenders commonly ask for 1.20x to 1.35x, which varies by lender and loan type. The DSCR calculator and cap rate calculator do the math; Lesson 4, Underwriting for the Buyer, goes deeper. You are not a lender: gather numbers and let the client's lender give the real answer.
The 1031 clock and why it changes everything
If the client is selling to buy, dates dictate the box. Confirm every number with the client's QI and CPA. You do not give tax advice.
| Rule | In plain terms |
|---|---|
| 45-day identification | Written, signed list of candidates delivered to the QI by the end of day 45 |
| 180-day exchange period | Close by day 180 or the tax return due date (with extensions), whichever is earlier |
| Identification limits | Commonly three properties of any value, or any number up to 200 percent of sale value, or a 95 percent exception |
| Value and debt | To defer all gain, replacement value at least equals the sale price, net equity is reinvested, and debt is replaced or offset with cash |
| QI in place | Engaged before the sale closes; the client never receives proceeds |
Illustrative dates. A sale closing Thursday, October 15, 2026 makes day 45 Sunday, November 29, 2026 and day 180 Tuesday, April 13, 2027. For a calendar-year individual return the April 15, 2027 due date is later, so day 180 governs; entities can differ, so the CPA confirms. Day 45 does not roll to Monday, so treat Friday, November 27 as your working deadline, and deliver earlier because November 26 is Thanksgiving. Under the 200 percent rule, a $2,400,000 sale allows identified properties worth up to 2 x $2,400,000 = $4,800,000 combined.
How the buy box changes. The price floor is the sale price, not a wish, and the leverage floor is the debt paid off. Target cap rate gives way to "which candidate closes inside the clock," so build a ranked shortlist with backups before the sale closes. Run the client's dates in the 1031 timeline calculator; read Course 21, 1031 Exchange Fundamentals, and Course 13, NNN as a 1031 Destination.
You can build the shortlist, calendar the dates, explain the rules plainly, and ask for QI and CPA contacts. You cannot promise a property will qualify, calculate boot, or guarantee a lender, appraisal or survey date.
This is education, not legal, tax or lending advice. Confirm legal and tax points with your broker of record, a Florida attorney and the client's CPA.
Writing the buy box back and keeping it current
Within 24 hours, send the buy box in writing and ask for changes and a yes; silence is not sign-off.
(b) Situation: Sending the written buy box. "[Name], attached is our buy box as I understand it: [asset], [size], [price range], [cap rate or return], [submarkets], [financing], [timeline]. Deal-breakers: [list]. Please reply with corrections and 'approved.' I will search only against this version and we will revisit it as the market changes. [Agent name], [title] | MaxLife Commercial, a division of MaxLife Realty LLC | [phone] | [email]"
The market will talk back. Update the box in writing when three offers or passes hit the same gap, when lender feedback changes loan share or timeline, or when a lease surprise tightens credit or term rules.
Managing expectations with market evidence
Bring dated evidence, not opinion, labeled by source, date and scope.
| Source and scope | Figure |
|---|---|
| Boulder Group Q2 2026, national median asking cap, single-tenant net lease (report) | 6.82% overall; industrial 7.25%; corporate QSR 5.85%; franchisee QSR 6.85% |
| Site NNN comps, broker-observed, not audited (comps) | QSR investment grade 4.25% to 5.00%; dollar store 5.75% to 7.00% |
| Site industrial estimates (Orlando industrial) | Small-bay multi-tenant 6.75% to 7.75%; Orange 5.75% to 6.75%; Osceola 6.50% to 7.50% |
The first is national and asking, not closed; the others are directional. They differ because they measure different things, and no firm publishes a Florida-specific single-tenant net lease cap rate index, so treat every range as market practice that varies. Add local context from the Orlando or Brevard County pages.
Credit spread arithmetic on illustrative NOI of $150,000: $150,000 ÷ 0.0585 = $2,564,103 at 5.85 percent, and $150,000 ÷ 0.0685 = $2,189,781 at 6.85 percent. One point of cap rate is worth $374,322 of price.
(c) Situation: The buyer wants a 7 percent cap on a corporate-guaranteed QSR that comparable stores price well below. "[Name], I hear the 7. National asking caps run about 5.85 percent for corporate-guaranteed QSR and 6.85 percent for franchisee-guaranteed, per [source, date]. At $150,000 of income, that point is worth roughly $374,000 in price. So we can accept a weaker guarantor for a higher cap rate, wait for a motivated seller, or lower the return target. Which fits you?"
Do not argue: show the spread, ask which risk they prefer, and if the box and market cannot meet, say so in writing.
A worked example (illustrative buyers, invented numbers)
Assumptions. All names, prices, rates and rents are invented for teaching, not market data or MaxLife Commercial results. Both buyers recur through Lessons 5 to 7. Loan constant 8.29 percent (0.082909; 6.75 percent, 25 years); lender requires 1.25x coverage.
Buy box 1: Palmetto Ridge Holdings LLC, single-tenant NNN, 1031 buyer.
| Field | Entry |
|---|---|
| Asset and lease | Single-tenant absolute NNN, corporate-guaranteed, 10 or more years left, fixed bumps |
| Price | $2,400,000 floor (the sale price), $2,500,000 target, $2,600,000 ceiling |
| Return and submarkets | 6.00% cap ($150,000 NOI ÷ $2,500,000); Orange, Seminole, Osceola |
| Capital | $1,500,000 exchange equity: $2,400,000 sale less $900,000 payoff, before selling costs |
| Clock | Sale closes October 15, 2026; identify by November 27; close by April 13, 2027 |
| Deal-breakers | Landlord roof duty on an old roof; under 7 years of term |
| Test | Arithmetic | Result |
|---|---|---|
| Equity, 40% loan share | $1,500,000 ÷ (1 - 0.40) | $2,500,000 |
| Debt replaces payoff? | $2,500,000 - $1,500,000 = $1,000,000, versus $900,000 | Yes |
| Annual debt service | $1,000,000 x 0.082909 | $82,909 |
| Coverage | $150,000 ÷ $82,909 | 1.81x |
| Lender capacity at 1.25x | ($150,000 ÷ 1.25) ÷ 0.082909 | about $1,447,000 loan |
The target sits well inside lender capacity, and the loan replaces paid-off debt rather than boosting returns (Lesson 4). Actual proceeds will be lower after selling costs, so swap in the QI's statement.
Buy box 2: Bayside Fabrication Inc., small-bay flex, owner-user, SBA 504.
| Field | Entry |
|---|---|
| Asset and price | Small-bay flex in Orange County, 20,000 SF; occupy 14,000 SF (70 percent), lease 6,000 SF; $3,000,000 target ($150 per SF), ceiling set by the tests below |
| Clock | Current lease ends in 14 months (Lesson 1) |
| Functional | 22 feet clear, utility-confirmed 3-phase power, 2 docks, 53-foot trailer court, zoning allows use |
| Capital | $400,000 cash for down payment and closing costs; ask about working capital outside it |
| Financing | Bank first lien 50 percent, CDC (certified development company) second 40 percent, borrower 10 percent (typical 504 shape; extra equity or job goals may apply) |
| Deal-breakers | Under 20 feet clear; no utility letter for power |
Bank loan $1,500,000 (6.75 percent, 25 years); CDC loan $1,200,000 (illustrative 6.00 percent, 25 years, constant 7.7316 percent).
| Step | Arithmetic | Result |
|---|---|---|
| Bank debt service | $1,500,000 x 0.082909 | $124,364 |
| CDC debt service | $1,200,000 x 0.077316 | $92,779 |
| Total, blended constant | $217,143 ÷ $2,700,000 | 8.04% |
| Payment test, $220,000 budget | $220,000 ÷ 0.0804 = $2,736,000 debt; ÷ 0.90 | about $3,040,000 price |
| Equity test | $400,000 ÷ 0.13 (10% down + 3% costs) | about $3,077,000 price |
The lower test governs, so the ceiling is about $3,040,000. At the $3,000,000 target, cash needed is $390,000 ($10,000 spare, so reserves are thin) and debt service is $217,143, $2,857 under budget. Occupancy check: the 6,000 SF tenant at $12.00 NNN pays $72,000, so $217,143 - $72,000 = $145,143 net, or $10.37 per SF on 14,000 SF. Against illustrative current rent of 14,000 SF x $13.00 = $182,000, owning looks $36,857 a year cheaper, before roof reserves, reassessed taxes, repairs and empty leased bays (Lesson 4).
Key takeaways
- Run a structured discovery meeting and translate buyer shorthand.
- Put the buy box on one worksheet with ranked must-haves and deal-breakers, and get written sign-off.
- Verify capital early: ask for a lender contact or term sheet, and test price with equity, payment and coverage math.
- For a 1031 buyer the clock and value floor set the box; confirm dates with the QI and CPA and never promise qualification.
- Use dated, sourced evidence to reset cap rate targets, and update the box in writing.
Next: Lesson 3 covers sourcing and screening deals against the buy box.