Year after year, our expert brokers and agents at the Triple Net Investment Group are entrusted with multi-million dollar NNN investment property listings. We then creatively complete a number of complex property transactions for clients from diverse industries, with greatly varied business and tax needs. Hire the Triple Net Investment Group.

In an economic environment, where laws and players, are made archaic by the day, it is critical that you pick our niche expertise. We specialize in triple net NNN or NNN 1031 investment properties, and nothing else. Period. 99% of our competition has NO specialization – they will say they are experts at whatever asset you want sold. Not here, not at the Triple Net Investment Group. Net Lease NNN is ALL we do, night and day, as we have for the past few decades – NNN and 1031 investment properties. That is why our peers respect us, and clients turn to us, and refer their friends and family to us, over and over, again and again.

At the Triple Net Investment Group, we actively utilize a 24-7 access to an extensive, national inventory of Single Tenant or Multi-tenanted, triple net NNN net lease 1031 property owners, who can act as buyers of our listings. Plus, our broker-friends – nationwide – in the industry welcome our participation in selling yours (or their!) sought-after listings – all to your benefit!  East Coast or West Coast or the Heartland of the USA, we use cutting-edge, cyber technology to access and connect buyers and sellers, anywhere and everywhere. Time zones don’t matter to us, our experts will take calls off-hours, anytime.

Triple Net Investment Group Brokers and Agents have concluded several hundred transactions over the years, with a focus on triple net NNN properties.  We seek to consummate listing transactions in a manner that earns us repeat business, decade after decade. Most of our work comes by way of referral from existing clients.  Often, clients have not had success with other brokers, will be directed to us, for speedy resolution to urgent investment NNN net lease property needs, often with a complex 1031 or 1033 exchange twist.

We wholeheartedly apply our:

§  Listening skills

§  Extensive experience,

§  Expert knowledge,

§  Unique insight,

§  Highly-honed, skills, and

§  Trusted, long-term industry relationships,

to help you – our client – obtain the maximum value and profit from your net lease NNN and 1031 exchange investment decisions. 

You must keep in mind that an experienced triple net NNN net lease broker offers value throughout the process of selling a NNN Single Tenant, Multi-Tenant or 1031 property. At the Triple Net Investment Group, our experts will use a solid process AND draw on past transactions history.  Our brokers at the Triple Net Investment Group are adept at working through major issues to get your NNN net-lease deal consummated with ease and sophistication, keeping all major relationships thoroughly intact.

By ensuring maximum national exposure to your listing, we become your GO-TO net lease brokers for your NNN 1031 property. Experience the difference. Witness the magic. Enjoy the super-profits, when you allow your able friends at the Triple Net Investment Group to guide you. Waste no time, call us or email today.    

A NNN investment property seller’s success from a NNN triple net or 1031 Exchange property investment isn’t only determining the best time to buy, but also having a rock-solid, defined SELL strategy, keeping in mind the following:

Infrastructure: Sales increase, as does the property value if customers can access a NNN property because of an improved road, new traffic signal or an upgraded sidewalk;

Improvements: The value of the building and property increases when the NNN investment property is improved up or tenants upgrade to a franchisor’s latest model;

Tenant business:  Industry trends can show when it’s time to sell for e.g. after 2008, triple net NNN property dollar stores have been good investments, because they were in demand; and 

Lease renewal: 1031 Exchange net property Investors or NNN triple net property Investors will favorably view a NNN triple net investment property if the tenant just signed or renewed a long-term lease.

NNN triple net investment property sellers have three broad categories:

Developer:  Always, consider the developer seller’s motivations. A developer’s costs will be relatively low because of scale in creating a large amount of product. One of the benefits is that the lease is already drawn, and a firm negotiation of the terms can eliminate the chance of major contract surprises.  The main negative is that developers sometimes give in to a strong tenant’s demands, even though the terms may be detrimental to the property’s value. Second, there is no history for the NNN property.

Users:  Despite the fact that there is a change in status for the user-seller, the sale/leaseback provides a number of advantages to both seller and buyer. The seller frees up capital to expand or enhance the business and the buyer, lowering the cost of capital. A buyer on the other hand benefits by predictable rate of return plus the benefit of any property appreciation, a built-in, lease-paying tenant and potential tax deductions and credits to offset a portion of rental income.

Investor: This type of seller presents a verifiable entity for the buying investor’s analysis. Investors can evaluate rent, expense, and tax history to calculate expectations of future income and risk.  Even after the prospective buyer has analyzed and approved the seller’s lease, stipulate a review of an estoppel as a contingency of closing. Many sellers only are willing to involve a tenant during the final stages of the transaction, when they are assured of a sale.   

NNN investment property or 1031 Exchange sellers also benefit by being able to customize a transaction, negotiating sale and lease terms that reflect unique landlord and tenant needs. Buyer investors, for example, may agree to a higher purchase price in exchange for rent escalations, rather than taking the risk of COLA increases. They may trade a short initial term for a series of 10-year rather than five-year options. NNN Tenants may feel comfortable with the obligations of a bond-type lease because they know the property.

One potential negative is the possibility that an investor seller over-improves the NNN investment property to enhance the company’s image and expects the buyer investor to cover this “extra”. This occurs most often with office buildings, but over-improved industrial facilities can be even more difficult to evaluate.

Nowadays, many NNN investors assume that finding the right property is as easy as entering the right search terms online. However, the truth is that finding the right triple net NNN lease investment or 1031 property depends on having the right broker.

Experienced brokers know that desirable NNN properties are worth every cent – since value is expected to increase fabulously with time. They also know that sellers aren’t interested in buyers who lowball and try to get a “deal.” An experienced NNN broker offers value throughout the process of buying a NNN Single Tenant, Multi-Tenant or 1031 property. You’ll need to make sure your broker will draw on past transactions history, and be adept at working through major issues to get the best deal consummated.

Here are a few things to look for in your quest for a top notch triple net NNN investment property broker:

Client Centric                                                                  

Your NNN investment property or 1031 broker should take time to get to know your goals. They should then show you appropriate property. Watch out for the NNN broker who attempts to saddle you with more debt than you want.   

Track Record                                                                 

Your triple net NNN property broker should have hundreds of transactions on their resume with a focus on seller or buyer representation, and have niche-specific expertise. Plus, it always helps to be referred to them!

Access                                                                         

A champion NNN triple net investment property broker will have a large and diverse inventory including public and off-market deals. This will permit choice from any number of properties to find the desired lease length, tenant credit and lease terms.

Financing                                                                                                          

Seek to identify a NNN triple net 1031 broker who has strong relationships with lenders and financiers including CTL credit tenant lease programs that provide debt for NNN or 1031 investment property assets, banks, conduit debt or life insurers.

Our Brokers and Agents have concluded a few hundred transactions over the years, with a focus on triple net NNN retail properties.  We seek to conclude transactions so that we earn repeat business, year after year, decade after decade. Most of our work comes by way of referral from existing clients.  Often, clients have not had success with other brokers, will be directed to us, for speedy resolution to urgent investment NNN property needs, often with a 1031 or 1033 exchange angle.

At the Triple Net Investment Group, we have 24-7 access to an extensive, national inventory of Single Tenant or Multi-tenanted, triple net NNN 1031 properties for sale. Plus, our broker-friends in the industry welcome our participation in selling their sought-after listings – all to your benefit!  Not only this, we can offer relationships with established, niched attorneys, CPAs, Qualified Intermediaries, Tax experts, surveyors, lenders, appraisers, builders, etc. who can serve your best interests, quickly, and for great value.

Always, our basic service is FREE to Buyers and we always negotiate the best price and terms for our clients, on either side of a transaction. Call or email today to obtain the best price – with our guidance – for your transaction.

A 1031 deferred exchange is the sale of one investment for the purchase of another investment. In terms of NNN property and/or mortgage, when an NNN property investor sells one NNN investment property to buy another, like property, they can offset or even avoid capital gains tax.   In a 1031 property exchange, the NNN property sold is referred to as the “relinquished property” and the triple net property acquired is called the “replacement property”.

1. The properties exchanged must be of like-kind, meaning that they are of the same classification, and not based on their condition or quality. However, this category is broad, and can mean selling a farm to buy raw land. Or, selling an office building and buying a strip center.
2. Real estate is divided into four classifications, including property held for business use, land held for investment, property held for personal use, and NNN property held primarily for sale. The first two qualify for a 1031 deferred exchange, while the last two do not.
3. The exchange must occur in the allotted time frames.   There are strict timelines for a 1031 property exchange to work including an identification period of 45 days during which you must identify a replacement property after selling your old one.  Also, heed the exchange period of 180 days – this spans from the date you sell your old property until you must close on the replacement property
4. There must be an actual exchange overseen by a qualified intermediary or QI, and not just a transfer of NNN property for cash.  That being said, it’s always wise to seek the services of a professional early on to avoid any costly mistakes when executing a 1031 deferred property exchange.
5. Contrary to popular belief, a 1031 deferred property exchange isn’t an all-or-nothing situation. You can do a partial exchange. However, if you buy a property for a lower sale price than your original property sold for, some of the original property’s sale price is taxable. The same is true if you choose to take on less debt with the replacement property.  Let’s say you sell a NNN investment property for $1,000,000 when you have a $250,000 mortgage. You buy a property for $500,000, also with a $250,000 mortgage. The $500,000 you receive during the transaction is taxable income.  In other words, you still defer tax on the bulk of the sale of the first property. But you’ll pay capital gains tax or depreciation recapture on the money that didn’t get rolled into the new property.

For the savvy NNN property investor, a 1031 deferred exchange can defer taxes and generate more cash flow and appreciation potential. Part of the equation for higher cash flow is to structure the best possible mortgage loan. By planning ahead, exchangers will obtain their investment goals with the flexible mortgage products available in the market place. Plan your next 1031 NNN Property exchange with lending issues in mind! 

Remember, the purchase price of the property (or properties) you buy must equal or exceed the sale price of the property or properties that you sell. So if you sell a property for $500,000, you’ll need to buy another property for at least that amount in net equity. Net equity on a settlement statement NNN property for cash (or cash due seller) results from the gross selling price minus retired or paid off debt, selling expenses, sales commissions and closing costs.  Also, there’s a debt financing requirement that applies if you have a mortgage on your original triple net NNN property. In a nutshell, you’re required to carry as much debt or more with your replacement property.   

Call or Email your favorite NNN property advisors at The Triple Net Investment Group for the best insight into your 1031 deferred property Exchange.

For those unfamiliar with a 1031 Exchange NNN, the Internal Revenue Code Section 1031 allows a commercial real estate investor to defer federal and state capital gains and depreciation recapture taxes on the sale of real NNN property held in the productive use of a business or investment when replaced by “like-kind” property.

Partial 1031 exchanges are defined by an investor’s choice to not use all the net equity and debt retired in the new NNN property. The portion of the exchange proceeds that is not reinvested is called “boot,” (Cash received is “equity boot” or, debt not replaced is called “mortgage boot”) and are both subject to capital gains and depreciation recapture taxes. Note that the best time to receive cash is at the initial closing. (A clever alternative is to do a post-1031 exchange refinancing to obtain cash, or by not paying the taxes by increasing leverage.)

Since a partial 1031 exchange is more complex than a standard 1031 exchange, selecting a carefully vetted “transaction team” is key. Particularly, consult a CPA prior to the transaction to fully understand your tax consequences of a partial 1031 exchange. There may be unrelated tax implications, such as income tax losses that could be offset, which could influence the decision to engage in a partial 1031.

WHEN TO ENGAGE IN A PARTIAL 1031 EXCHANGE

If an investor knows the exact amount needed for acquisition of the replacement property, they can ensure that a specific dollar amount is distributed directly at the closing of the relinquished NNN property’s sale.

Usually, the exact amount of equity needed for the purchase of the replacement NNN property is unknown at the outset of the partial exchange. One solution is to have the qualified intermediary (QI) hold all of the proceeds from the sale of the relinquished property, and distribute the excess cash from the exchange account after the equity requirements for the replacement NNN property have been determined.

A partial 1031 exchange might make sense if the investor needs some cash for use after the transaction. E.g., relinquish a property for $6,500,000 to cover the need for $500,000 for the replacement property’s improvement by acquiring a HOT replacement property for $6,000,000 and realize a $500,000 taxable gain!

A partial 1031 exchange may also work if an investor wants to lower leverage. E.g. relinquish a property for $5,000,000 which bears a $500,000 mortgage.  If the investor wants to own the next NNN property free and clear, complete a partial 1031 exchange by purchasing a replacement property for $5,000,000 in cash and paying taxes on the $500,000 boot.

WHEN NOT TO DO ENGAGE IN A PARTIAL 1031 EXCHANGE

Generally, if the taxable boot is greater than the amount of the capital gain, it may not be worthwhile to engage in a partial 1031 exchange. Every investor should review their specific 1031 exchange situation with a tax and legal advisors before closing on the sale of the relinquished property for a partial 1031 exchange.

For outstanding advisory regarding full or partial 1031 Exchange NNN properties, please call or email your trusted “deal team” at The Triple Net Investment Group.

A triple net NNN investment lease property is leased by a tenant responsible for paying rent, taxes, insurance premiums, repairs, and utilities – as such the landlord is more or less, passive(NNN Lease Property Investments). The tenant is also committed to a lease, ranging from 5-25 years. Here are 8 facets that you should know for sure about investing in NNN triple net investment lease property:

CAP RATES:  An investor should be very familiar with the national net lease tenants and the cap rates their NNN leases are traded. The cap rates reflect the security they offer. For example, some national tenants don’t offer rental escalations in the lease.   However, these are financially secure tenants and the chance of them not paying rent is extremely low. Something like a fast-food restaurant that is operated by a franchisee can trade at a higher cap rate but is riskier.   Items like prior tenant performance at that location, market rents, re-leasing, etc. should also be evaluated.

TRUE NNN LEASE:  Often a lease will be called a “triple net lease” for convenience when in fact it is not an NNN lease. Labels like full service, modified gross or triple net,  used by brokers and landlords, will often be at odds with the clauses and legality of the lease.

NOT INCLUDED: While a true absolute NNN lease with a strong tenant can be thought of as a turnkey commercial property from the landlord or investor’s perspective, even an absolute net lease has some expenses that won’t be borne by the tenant(s). 

RISKS & REWARD:  NNN properties can be considered as low-risk investments due to their stable, predictable, and often higher returns.  Although non-investment grade tenants provide a high risk, high reward opportunity, many investors favor national brand, corporate-backed leases for risk mitigation.  

MARKET VALUE: A triple net NNN lease property is determined by the quality and location of the real estate, length of the lease, rent bumps, and, tenant credit.  Remember, triple net lease property values are based on projected future cash flows, which means that the underlying value of the asset may change over time as the duration of the lease shortens.

BOND-LIKE: NNN property leases can be stereotypically guaranteed by a long-term lease at a preset rental rate. As an investor, you will know, with certainty, the amount, timing and duration of rental income. Thus, NNN properties are considered bond-like, investments, due to their resilience in up and down, market cycles(national net lease tenants, Triple Net Investment Group ). 

INFLATED RENT:  Inflated rents in a NNN lease may make the investment return appear highly desirable if not evaluated against changing market conditions. A drop in base rent to match the market will impact resale value which may be less than the investor’s cost basis. 

NEGOTIATIONS: Most all investment-grade potential tenants have very convoluted legal language in their leases.  Beware of negotiating the terms and language of a NNN lease without an expert, legal and brokerage, help.

Call your trusted advisors at the Triple Net Investment Group as you consider your first, second or next NNN property investment. You won’t be disappointed. 

A NNN property lease is highly attractive to investors as it affords a stable income, and it minimizes the property management cost and risk for the landlord. Tenants are responsible for most or all of the operating expenses, and investors can be as hands-off as they want. 

When evaluating NNN property investments, it is mission-critical to consider the following:

1.    Lease term: NNN lease properties lease terms can last 10-15 years, or longer. For example, if a triple net lease with ten or fifteen years still left in the lease, market risk is highly mitigated, as long as the tenants are strong, and a good tenant guarantee is in place.   However, if a mom and pop franchise tenant the property and there are only 3 years left on the lease… then the investor owns a low-value, property that other investors will view as high risk.

2.    Corporate Guarantee: A strong triple net lease NNN property should be backed by a corporate guarantee from the parent corporation with particular clauses and language regarding primary obligation and an authorized guarantee agreement.  

3.    Lease Clauses: due diligence on the entire lease is key.  E.g. termination clauses give the tenant the right to terminate the lease (generally without penalty) at a specified point in time.   Other provisions give the tenant the right to terminate the lease early. Often, there are multiple options that give the tenant the right to renew/extend the lease by three or five years at a time with a specified rent increase or decrease.

4.    Tenant Credit: even if tenants have a great credit rating, it’s worth analyzing the health of their industry to predict whether their business will remain stable, or grow.  Also, many corporate tenants have a franchise model, and this means buying a property with minimal capitalization.

5.    Location: to tenant or re-tenant a property, it is easiest to do so with a well-located NNN property measured by:

• Traffic Counts (many retailers and restaurants require a minimum number of vehicles to pass the site each day)
• Demographic data (age, income, gender, etc. statistics)
• Population density (within 1,3 or 5-mile radius)
• Accessibility (due to medians, curb cuts, etc.)
• Visibility (from passing traffic)

6.    Debt on the Property: NNN investment properties may carry long-term debt that cannot be paid off early without penalties.  Sometimes there are assumption clauses that allow a new borrower to assume the existing debt, for fees(1031 Exchange Needs).

7.    Building Lot:  Having an appropriately sized property is a huge investment factor.  Many NNN tenants require a minimum parking ratio before they will consider a location. Certain retail, restaurant and medical tenants have needs that far exceed minimum standards established by city code(Net Lease Properties, NNN properties lease terms). Excess land gives the investor options to either expand the current building or to subdivide the land and construct an additional building or, sell off the excess parcel.  Also, certain buildings are very easy to convert to alternate uses, for e.g. Dollar stores, auto parts stores, and many fast-food restaurants. 

8.    1031 Exchange Needs: if the investor is in dire need of a 1031 exchange into a NNN property, then understanding the process and, having the time, access to resources, and identified, proven expert accountants, lawyers, and brokers is key, as well(Triple Net Investment Group).

Call on your favorite brokers and advisors for NNN property investment at the Triple Net Investment Group, today, for ensuring an effective, and profitable purchase or sale. 

For investors, finding the right tenant to occupy an NNN property investment property is critical to its success.  NNN tenants span the property spectrum, including office and industrial, but most commonly NNN lease property investments are in retail, which includes fast-food restaurants (Burger King, McDonald’s), grocers (Walmart, Giant, Albertsons, Publix, Whole Food) convenience stores/gas stations (Sheetz, Wawa, Pilot, etc) and big-box stores like Target, IKEA, Kohl’s, Macys, Lord & Taylor etc. 

Let’s look at the factors which are essential in understanding which type of NNN property tenant to consider:

CAP RATES/RISK: Asking prices for Triple Net properties are typically quoted based on a capitalization or “cap” rate, which is determined by dividing the property’s annual net operating income or NOI, by the purchase price.  Generally, riskier investments trade for higher cap rates, while more stable investments trade based on lower cap rates. 

CREDIT RATINGS: In general for NNN lease properties, a good choice is a nationally recognized tenant with little or no debt, or, with an investment-grade (BBB- or better) credit rating from one of the three major credit rating agencies – Moody’s, Zack’s, or S&P.  Larger or public companies are often assigned a credit rating by a credit agency.  Credit ratings represent the likelihood of a company defaulting on its financial obligations.  If private tenants are being evaluated, then investors should definitely consider:

1. Tenant Credit Report: Request and review Tenant credit profiles from one or more of these types of reporting agencies:   D&B, Equifax Small Business Enterprise, Accurint Business, and ClientChecker;
2. Tenant Business Plan
3. Tenant Sales History
4. Tenant Annual Financial Reports and AuditedTax Returns
5. Tenant Certified, Personal Tax returns

Perhaps the most important factor when considering a Triple Net NNN property investment is the credit quality of the tenant – which is largely attributable to the tenant’s ability to pay rent over the course of its lease(NNN property brokers). All else being equal, properties occupied by strong tenants with investment-grade ratings generally trade for lower cap rates than those with non-investment grade tenants.  

PARENT GUARANTEES: In addition to credit ratings, NNN property investors should look for a lease that has a guarantee from the parent corporation. For example, X is a subsidiary of Y. X may be a good tenant in its own right, but with a lease backed by the parent, Y, the investor will be better off.  In order to ensure that the parent company guarantee will hold up in court, consider the following:

·         Obtain an authorized guarantee agreement from the parent company. Doing so means that if for any reason the original tenant assigns the lease to a new tenant, the parent company can also be held responsible for ensuring the new tenant is also obligated to carry out the conditions of the lease;

·         The parent company should use the phrase “primary obligation” when describing the guarantee. By adding this phrase, a tenant’s obligation to pay rent converts into a primary obligation for the tenant’s parent company;

·         There must be actual wording in the lease from the parent company that states they obligate themselves to pay the rent and meet other lease obligations.

MARKET CYCLE RESILIENCE: Examining tenant companies that remains strong in most market cycles is another way to mitigate risk. For example, should a recession hit the United States, most people may save some cash by skipping their Starbucks coffee, but most will still refill their prescriptions. A rule of thumb: look for a tenant that sells a necessity product that is positioned to survive market downturns, such as a healthcare tenant like CVS, or Walgreens, or a Grocery tenant like Aldi’s, Walmart, Kroger, etc.

Get the guidance of top-rank NNN property brokers at the Triple Net Investment Property Group, today, to make a market-savvy decision on the best tenants for your NNN property investment.

TOP TEN SECRETS OF 1031 EXCHANGES

• The first secret is using a Qualified Intermediary or QI to perform 1031 Exchange Professional services, escrow and paperwork doesn’t cost much – about $1000 – $2000 per “round trip” i.e. 1 RQ (relinquished property) and 1 RP (replacement property) – where the property being relinquished is RQ and the property being purchased is the replacement or RP. For each subsequent RP, the fees could be as low as $400, per RP.

• Weigh this against the possible penalties of a 1031 exchange gone awry:  income tax pursuant to the sale of the RP, PLUS the penalty and interest imposed on the underpayment of tax, equal to the federal funds short term rate plus 3%. Another – the accuracy penalty – is 20% of the substantial understatement of the tax. (A substantial understatement is the greater of $5,000 or 10% of the recognized gain.) Another, a fraud penalty may be imposed of 75% of the underpayment if it is determined that investor’s intent was to evade the tax.  Also, S 6701 levies penalties if anyone assists in the preparation of the investor’s return knowing that this help may result in an understatement of tax. A $1,000 – $10,000 penalty is possible, here.

• Little known fact: all exchange documentation must be filed prior to settlement of the RP. This prevents constructive receipt and proves intent.

• The investor a.k.a. Taxpayer (TP) must never have actual or constructive receipt of exchange funds, rather the QI will manage escrow and wiring funds prior to settlement.

• The taxpayer that sells must be the taxpayer that buys. If the wife sells and then both husband and wife buy jointly, the exchange is partial.  However, it is ok if the wife sells a RQ, and buys the RP via a SMDLLC – single member disregarded LLC.

• Allowable Exchange Expenses (AEE) are those expenses that pertain directly to the exchange transaction such as broker fee, exchange fee, transfer & record fees etc. Property operation expenses are NOT allowable e.g. condo fees, taxes, insurance etc.  (AEE can be added to the purchase price of the RP to increase the taxable basis of the RP!)

• To properly qualify for use in a 1031 Exchange, a Qualifying Property must be held for Qualifying Purpose.  Law disqualifies TP residence, stock in trade, stocks, bonds, notes, securities, interests in entities, resale property, dealer property, flips etc., generally, based on time owned. Qualified property could include: home office, vacation homes for investment, etc.

• 45 Days are allowed by statute, after settlement of the RQ, within which a TP files to narrow choice of RP and comply with either of 3 RULES: 3 property rule – identify 3 properties regardless of value, or 200% rule – 200% of the Fair Market Value of the RQ, for any number of properties, or the 95% rule. RP List cannot be changed after Day 45, closed on or not.  Further, the identified RP must also meet “Trade Up/Trade Even” tax rules.

• RP must be “like-kind” – basically any real estate is ok, as long it fulfills Qualifying Purpose definitions.

•  Identified RP must be closed on before midnight on Day 180 from RQ settlement date, or when tax return is due, including extensions.

A Zero Cash Flow property (Zero) is real estate property where the net operating income matches the debt service expense on its mortgage loan and, the transaction falls under IRS code 467.

Example

If the investor is not concerned with current income, but with a free and clear property beyond 2 decades, then the zero strategy may fit.  These are not designed for the inexperienced investor with shallow pockets. Typically, an investor purchases a triple net NNN property with an investment grade tenant (CVS, Chick-Filet, Wal-Mart, etc.) with a minimal down payment (10-20%) and uses 75-100% of the free cash flow generated to pay off the mortgage (that’s why, zero cash flow). At the end of the long (15-25 years) loan term, the investor owns the NNN property free and clear and renews the lease or 1031 exchanges into another like-kind Zero cash flow property.

Trading values for Zero cash flow property are usually expressed as a % in excess of debt. 

E.g. a brand new Wal-Mart Zero with 15 years left on the loan until maturity, would price in today’s market at probably between 10% – 11% over debt, meaning if the loan is at $10MM, then the total value be about $11MM, meaning it can sell for $1MM plus, in equity.    Alternatively, a property that would otherwise trade at a 6.00% cap, structured as a Zero, one must adjust the cap rate upward with a deal premium of up to 1.5%, thus obtaining a true value near 7.5%.

Benefits of a Zero Cash Flow property

• Generate tax free equity within a 1031 or 1033 exchange

The best benefit for investors is the Pay-down/Re-advance feature which provides for the tax-free, equity via Substitute Collateral Right language in the mortgage, or, more commonly, the Pay-down/Re-advance feature, as follows:

An investor will sell property for $40MM and exchange into a triple net NNN Zero. The property is currently held with debt of $10MM and $30MM equity. The owner identifies a Zero for $40MM with $4MM as equity (trading at 11% above debt) and will assume $36MM. The owner applies $30MM in equity to purchase the Zero replacement, thus meeting the equity obligations of the 1031 exchange. Prior to closing, within the time restrictions of mortgage covenants, the owner notifies the lender to exercise the Pay-down/Re-advance directly after closing.

The owner thus applies the full $30MM in original equity to the purchase price of the Zero, and of that $30MM, $26MM is available as excess from the $4MM of equity required to purchase the Zero property. At this point, the debt re-advances from the original $10MM to the new $36MM, with the proceeds of $26MM going to the new owner of the Zero cash flow NNN property. 

As a result, the owner pulls out $26MM in tax-free cash from the 1031 exchange, holds a new triple net NNN property worth $40MM, with $36MM in debt.

• Generate passive losses to tax-shelter other investment income

Owners of Zero Cash flow property get tax benefits in the early part of ownership. This is due to the ability to report a tax loss due to structured depreciation which more than covers principal payments, under Code 467, for the first 10 -15 years of the loan.

• Significant investment upside at end of loan period

Usually an upside accrues to the investor due to market appreciation over the lengthy time period of the investment, usually greater than 20 years.

• Control real estate assets with minimal equity

Zero triple net NNN properties greatly help 1031 investors to build trusts for their families or create long-term portfolios. Due to the minimal down payment, institutional credit of tenants and little to none asset management, they are great opportunities for growing wealth, passively.

Features of a Zero Cash Flow Property

1. Investment Grade Tenants

The credit of the tenant – or guarantor – is the main thing to consider as the investor is investing in the cash flow that comes from the triple net NNN lease. The stronger the guarantor’s credit, the lower the risk of the investment and thus, a lower cap rate. In Zero 1031 exchange deals, Investment Grade Tenants are commonly used because the value in the income stream is derived from the tenant’s superior ability to pay rent, with the underlying real estate given a secondary consideration.

• Triple Net NNN Leases

NNN leases are most commonly used to structure a Zero deals since 1031investors want passive, not active, property management.  Triple Net NNN leases allow investors to acquire a single-tenant, property with the tenant assuming all expenses.  This gives the tenant de-facto control of the property while providing the investor with dependable cash flow with minimal responsibility

• Assumable debt

Lenders in Zero NNN deals stereotypically offer a nonrecourse, assumable, fixed-rate mortgage, which can be assumed very quickly, under mortgage covenants to give investors the nimbleness they need to get into (and out of) Zero property.

• Maximum Depreciable basis

When a 1031exchange investor LLC or partnership needs to offset current income with a higher depreciable basis, they may consider a Zero cash flow triple net NNN property, as their first choice. Essentially, IRS Code Section 467 allows for very flexible and aggressive structuring of depreciation, which in turn can generate maximal tax losses.

Important Considerations

• Ensure a 6-12 month cash buffer to hedge a compromised cash flow from the Zero triple net NNN property.

• Have a well-thought out plan for the end of the lease/loan for the tenant and property. 

• Don’t discount the intrinsic potential of the real estate and simply view the Zero cash flow NNN property as a security or abstract financial instrument.

• Ensure proper underwriting and due diligence is done to maximize returns.

• Conduct a last owner’s search to confirm any title defects since the date of the existing title policy.

• To protect against any untoward liens, consider buying UCC insurance, which insures the lien-free status of the new owner. Especially, consider adding an Equity Ownership rider, which insures the investor from any adverse claims that accrued prior to the effective date of the policy.
• If any bulk sales laws apply to the transaction, then failure to comply will expose the investor to liability that is otherwise the responsibility of the Seller.
• A Zero cash flow triple net NNN property is relatively illiquid, as there are fewer buyers in the market for zeros as compared to more traditional commercial property investments.

• The 1031 exchange investor needs to consider the phenomenon of “phantom income” when the property no longer amortizes at a loss (depreciation minus principal payments) – usually in Year 12  –  and the owner must pay tax on the principal pay down of the loan.   

• Investors can acquire 100% of the corporation that holds title, avoiding loan transfer fees and taxes in some states such as FL, NV and OH.  In addition, start-up costs are minimized since the investment vehicle already exists. 

Alternative/comparable investments

• If an investor has capital and an experienced real estate team, the investor could: a) buy the land and do a ground lease, or, b) participate in development, or 3) participate in both (a) & (b). When a Zero cash flow triple net NNN property is structured as a “Pre-Commit” or “Forward Purchase”, an investor contracts – at a pre-determined cap rate – with a developer to buy a new, occupied, single-tenant building. Typically, cap rates are higher under this type of purchase than other, traditional, sale structures.

• Essentially, a Zero Cash Flow NNN property can be mimicked by a zero coupon bond where an investor buys a bond, without any cash flows (i.e. no interest income or coupon).  Ultimately, this bond generates a large upside by virtue of the difference in the initial discounted purchase price of the bond versus the “face value” of the bond, resulting in a “balloon” at maturity.

Professional Involvement

• Lenders must be comfortable with monetizing the entire rent triple net NNN stream, so that the financing amounts to as much as 85 to 90 percent loan to value (LTV). Lender fees are lower for transfers of ownership and a new loan document may not be required.

• When using a title company, consider a national (versus a local) title underwriter, who is acutely familiar with such transactions. Because of their niched expertise with Zero loan and transfer documents, closings are conducted without unnecessary hiccups and delays.
• Although most real estate attorneys can navigate a Zero cash flow property transaction, an attorney who has extensive experience in this arena, is best retained.
• 1031 Exchange “agents” are also best used should an investor be using a Zero for 1031 or 1033 transaction
• Finally, contact Triple Net Investment Group real estate NNN advisors for your Zero cash flow triple net NNN property transaction and benefit from their decades of expertise in helping investors, nationally, achieve their 1031 or 1033 goals, efficiently and hassle-free.