How you can make most out of your NNN investment?
What really worries investors is those extra dollars that they spend on the maintenance of their investment properties. There is no doubt that after some point of time every property goes through depreciation. Many investors fail to maintain equilibrium between the decreasing property’s value and rising maintenance cost. As a result, either they sell out their properties or replace it with another one. The best way to deal with this problem is to exchange out your property for a NNN property using a 1031 Exchange.
A NNN or triple-net lease is generally a single-tenant arrangement that requires the tenant to pay the additional property expenses along with the base rent. Sometimes, a NNN property can also be leased out to more than one tenant. Usually, the additional property expenses include insurance fee, property taxes, and maintenance cost, which are together known as the ‘three-nets’. Therefore, a lease that requires tenants to pay all three nets is known as an Absolute NNN lease.
Similarly, a lease that requires the tenant to pay any two nets or two additional property expenses (which generally includes insurance fee and property taxes) is known as a NN or a double-net lease. Though a NN lease also reduces the burden of paying additional property expenses to some extent, it couldn’t be a replacement for an Absolute NNN lease.
Why you should invest in NNN properties?
A NNN investment not only benefits the investors by lifting the burden of paying the maintenance cost of the property, but it also benefits them in many other ways.
- Using a 1031 Exchange, an investor can exchange out their investment property for a NNN property and defer up to 100% capital gains taxes or they can also exchange a NNN property for another.
- NNN tenants are generally high credit rated tenants. Therefore, a NNN investment also ensures a regular flow of income for the long-term.
- Though the base rent of properties leased under a NNN lease is generally less than that of properties leases under a gross lease, however, as tenants are also required to pay the additional property expenses, NNN investors aren’t likely to suffer any kind of loss.
How you can exchange out your old property for a NNN property using a 1031 Exchange?
- The first step requires you to enter into a 1031 Exchange agreement along with a Qualified Intermediary.
- The second step is where you sell your relinquished property.
- Upon successfully closing on the sale of your relinquished property, the next task is to identify a potential NNN property within 45 days. This deadline of 45 days is known as the ‘identification period’.
- Once you’ve successfully sent a written description of the identified NNN property, you’ll need to acquire the same in the next 135 days. You’ll get a total of 180 days for completing your exchange.
You can find many properties that are put under NNN lease for sale throughout the entire USA. There are also handsome chances that you find a NNN property that is already leased out to a tenant. This is the best option as you will start receiving income as soon as you acquire the NNN property.
One thing that you must check before finalizing a NNN property is its capitalization rate. The Capitalization rate or CAP rate is determined by taking out the ratio of the property’s current market value to the annual income produced by it. For example, if a property’s current market value is $500K and the net income produced by it is $100K, then its CAP Rate will be ($100,000/$500,000) = 20%. The Capitalization rate is generally used by investors to calculate the net operating income of a property.
How we can help?
We provide complete assistance for your 1031 Exchange and connect you with the 1031 Exchange Expert. Not only this, but we also help you with fund transfer/documentation, etc. At last, we work hand in hand with your attorney, accountant or closing agent for ensuring that the transaction runs smoothly.
For consultation and assistance regarding 1031 Exchanges, you can call 888-993-2835 or email us at email@example.com