Frequent 1031 exchange tax and NNN real estate questions
What is like kind property?
This question is often the most misunderstood concept of a 1031 exchange. This confusion leads many investors to unknowingly pay capital gains tax (many will even reinvest their after tax proceeds in real estate not knowing they had 1031 exchange options).
The basic concept behind like kind property for 1031 exchanges deals with use, investment/business vs. personal(ie. your home). A rule of thumb is if you depreciated the property(unless vacant land), you may 1031 exchange into another investment/business use property. For 1031 exchange purposes, the type of real estate asset (single family rental home, apartment building, a vacant lot... etc) is interchangeable. Therefore, capital gain from an investment single family rental(any real estate asset type) may be traded into NNN property, office buildings, shopping centers or any real estate asset type.
Who will benefit from using the site?
All can benefit, but in particular this site was created to bring together buyers and sellers of net leased properties. The site also attempts to fill a basic informational gap. Very little 3rd party information is available for principals involved in 1031 exchanges. Our attempts are to be informative and provide the resources for investors to take action.
Why register to use the site?
The listings on the site are sensitive, and offerings are confidential in nature. Both brokers and principals wish to market and still maintain some control of the listing information. Registering to use the site and search available listings offers this accountability.
Do I have to be in a 1031 exchange to purchase the properties?
Of course not. Call or email the contact person on the listing for more information and the offering process details.
I live in California. The property I want is in FL. Is it wise to purchase a property outside normal driving distances?
Because most net leases require no landlord participation, you are free to buy property anywhere in the country. In fact, many owners purchase out-of-state properties to shield the rental income by purchasing in 'no income tax' states. Other investors purchase locations by favorite vacation spots to write off future travel costs as a business expense.
I live close to a location that I'm interested in, is it ok if I go by and ask questions?
It's okay to drive by and visit as a customer, but do not speak with anyone at the site unless you have specific permission from the contact person. 99.9% of these sales are transparent to the staff at the location. These transactions are conducted by higher level management not at the sites. Imagine the panic of the employees at a location worrying that they are going to lose their job because management is selling the location... that's why.
I bought a net leased gas station, do I own that business?
No, they are a tenant operating on a lease. If they have a lease for an amount of time, the sale is for the real estate only.
Will I recognize any of the tenants, what type of properties are sold?
Almost every corporation of size has sold property in the form of a net lease. It will be a little surprising, because you will probably recognize every brand name. The types of properties vary from retail fast food locations to drug store locations to movie theatres to post offices to corporate office campuses to even hospitals(to just name a few!).
What is the difference between NNN and NN leases?
A triple net lease(NNN) involves no landlord responsibilities. Double net leases(NN) require the landlord take responsibility for some aspect of the property, typically roof, structure or parking lot. NN leases usually have a reserve provision to set money aside for this maintenance/repair.
Why does a company sell their locations?
Many companies engaged in net lease sales as a way to free up money from real estate as a means for expansion. Most companies can earn a higher rate of return reinvesting the capital into their core business activities. Additionally, modern day accounting changes make it more advantageous for companies to be liquid and have their capital focused on their core business.
How quickly do properties sell?
Very fast. You'll get the feel for the market, but most properties will sell at or very near to the listing price and close in under a month. In some cases, sales can close in even a few days. Because these are cookie cutter transactions, the market is vibrant and moves very fast.
What should I look for in a purchase?
Prices and properties will vary. Many people focus upon the tenant, rate of return, lease type and underlying real estate. As you'd imagine a lease guaranteed by the government or a major national company is more desirable than property leased to a smaller tenant. This risk is usually mitigated by different rates of return on the various properties. Other purchasing factors can include and are not limited to underlying real estate, lease escalation clauses and market fundamentals. Consult your advisors.