We specialize in sellers…so why talk about buyers today? Because after we sell properties, many of our clients reinvest the proceeds from sale into a replacement property using a 1031 Exchange. And they’re usually exchanging into a NNN property.
So why do they love NNN properties so much?
- Viewed as safe, recession-proof assets that preserve cash flow and yield
- A single-tenant net lease investment is like a bond wrapped in real estate
- Thanks to rent hikes built into many net leases, you enjoy positive cash flow and a hedge against inflation
- There’s residual value of the property itself once the lease expires
- Long-term stability of the leases
- Possibility of the property appreciating in value
- Potential of tax write-offs for depreciation
- Largely hands-off nature of managing the properties
- Easier to pass properties onto the next generation
In fact, 1031 Exchange buyers accounted for about two-thirds of the single-tenant deals in 2017.
Many switch to net lease properties as a “truly passive” investment after having had more active ownership in properties like apartment complexes or shopping centers.
Cap Rate vs. Location?
Over the last several years, we’ve seen a shift from investors turning more toward yield (cap rate) than just focusing on trophy locations.
How much does location actually matter?
Net lease properties in major markets, particularly those in states with no income tax, are generating the most demand from investors.
What’s the cost?
Depending on the location, the tenant’s creditworthiness and the length of the lease, cap rates for single-tenant net lease properties with long-term leases generally range from 5 percent to 7 percent.
Long vs. Short Leases?
The lease term is particularly important because you’re buying cash flow. A shorter term lease means you’re buying a shorter term of cash flow. There’s risk for you if you can’t replace that cash flow right away.
Remember it’s still a real estate-centric investment, so the fundamentals of the real estate still need to be considered. You clearly have to understand the scenario planning in the event that a tenant were to vacate:
Who’s the replacement tenant?
What would their credit be?
What would the lease term be?
As you can see NNN properties are a great way to preserve wealth and avoid paying capital gains taxes when you sell your property. Most investors continue to exchange until the end of their life. Then when their children inherit the properties they do so without the capital gains exposure. It’s one of the few remaining ways to get away with not giving Uncle Sam his cut.
Considering selling? Get the step-by-step blueprint to sell your property for the absolute highest price the market will pay at www.SellforMorePlan.com
About Beau Beach, CCIM
Beau is an elite Investment Real Estate Broker, Forbes contributor, author, investor and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau leads Prowess IRES which specializes in selling investment real estate for the absolute highest price the market will pay in the Milwaukee, South Florida, Chicago and Nashville markets.
Beau can be reached at 414-324-4938, 561-425-9935 or Beau@ProwessIRES.com