is a Triple Net NNN lease?
NNN’s are typically purchased on a cap rate. A cap rate is essentially a yield which is determined by dividing the tenant’s annual rent by the purchase price. For example, if Walgreens is paying $350,000 annually and the purchase price is $4,375,000, the cap rate is 8% ($350,000/$4,375,000).
A NNN Property can either be a single or multi tenant investment like a shopping center, office building or a free standing building. A NNN Leased investment gives you total (fee-simple) ownership of a commercial property, which is pre-leased to a high credit retail tenant – (Walgreens, CVS, McDonald's, Lowe’s, Dunkin Donuts, etc.) – on a long-term basis (usually between 10-25 years), providing you with a stable, long-term cash flow. NNN leased property can be an excellent replacement property in completing a 1031 real estate exchange transaction.
The price range for a Single Tenant NNN lease property is generally between $1 million - $10 million. The fast food restaurants and auto stores and are the most affordable, while drugstores are on the higher end. Big box retailers such as Home Depot, Lowe’s, and Publix can bring from $15 million to $25 million.
What is Build-to-Suit?
What is a
The reason ground leases are desirable
is because the tenant is only paying to rent the land and use their own
funds for all of the improvements. If the tenant leaves, the owner of
the land gets the improvements and since the rent is so low (because the
tenant paid for all of the improvements and was only paying to rent the
land) you should easily be able to increase your return on investment.
So it could actually end up benefiting a buyer if the tenant exits. Ground
leases trade at a lower CAP Rate because they are usually lower price
points and below market rent.
There are two major advantages for a tenant entering into a ground lease, as opposed to purchasing the land.
Typically ground leases are long term and include set rent escalations, foreclosure rights should the lessee default, and a reversionary right, which means improvements on the property revert to the landowner at the end of the lease term. While such lease terms do not particularly favor developers, ground leases offer some distinct advantages.
Whichever is better depends on what the investing goals are for the property owner....both involve low maintenance, and low management; however, there are tax consequences which would effect the owner's bottom line.
Subordinated and Unsubordinated Ground Leases
Reasons Why a Landowner Might Agree to Subordination
|What is an "Off Market"
These are investment properties that are not available on the open market. Frequently the owners do not want the public or tenants to know that their properties are for sale. Owners most often require that detailed information only be made available to qualified investors who have signed a Confidentiality Agreement. Also under this category are “pocket listings” that would normally only be made available to the brokers best clients. TM 1031 Exchange Inc. is specifically structured to provide a national venue for such properties.
The minimum down payment usually required by lenders for a multiple tenant NNN property is 25% to 35% for investment grade tenants and 35% to 40% for most other tenants.
The advantages of owning a
Triple-Net leased property...
The most important reason investors like NNN properties is the simple enjoyment of owning income property without the hassle and expense of devoting time and money to the management of the property and at the end of the lease term you may well own the property free and clear.
What is a Sale Leaseback?
The balance sheet of your business is
improved greatly and you retain control of the property. Since you will
be leasing the property you can defer a good portion of the tax liability.
With a lease you can write off the full payment each month whereas with
a regular loan only the interest payment can be written off. When you
complete this transaction you are always guaranteed the full market value
of your property, so you don’t risk losing any money in equity.
Real estate sale leaseback transactions are becoming more popular because they generate capital for immediate use within your business. It unlocks the value in your real estate. With real estate you can get more capital because of how fast it grows. Some businesses do sale and leaseback transactions for equipment as well.
About 1031 Exchanges:
Exchange Period: An individual has 180 days from the date of selling their property that was the basis for the 1031 to receipt of the newly-acquired property.
The period within which the person who has sold the relinquished property must receive the replacement property is referred to as the “Exchange Period” under 1031 of the IRC. This period ends at 180 days after the date on which the person transfers the property relinquished or the due date for the person's tax return for the taxable year in which the transfer of the relinquished property occurred, whichever is earlier. A word of caution: Many ill-advised or careless investors see the language referring to the due date for their tax return and assume they can wait until the last minute to purchase the new property. Remember – the deadline is the EARLIEST of the two scenarios. If an individual were to sell their 1031 property in May, the deadline for acquiring a new property (180 days) would fall well before their tax return in the spring of the following year.
While the utilization of 1031 exchanges can be an extremely valuable tool for maximizing tax savings, it is a very complex process and often difficult to navigate.
At Solid Investments we can assist you in locating a like-kind property for a 1031 exchange and ensure a smooth and successful transaction.
The properties shown on this website
may or may not be exclusively listed by SOLID
INVESTMENTS of Berger Realty Group.
INVESTMENTS of Berger Realty Group • Phone
954-296-6955 • Fax 954-944-1830