A real estate investment may not always provide what you expect from it. Sometimes, the returns may not be satisfactory or the profit could be accompanied with day-to-day management responsibilities. With the real estate market booming every year in the United States, a variety of real estate investment structures have been introduced in recent years. A NNN investment is one of them.
Variation in Net leases –
A triple net or NNN lease is a single-tenant arrangement that removes the burden of property management from an investor’s shoulders by asking the tenant to pay all mandatory property expenses along with the base rent. Unlike a standard or gross lease in which the tenant only pays the base rent, a NNN lease requires them to pay all three major property expenses – insurance fee, property taxes, and maintenance cost. This kind of investment requires a long-term commitment and may lock the tenant for a period of 10-15 years.
However, not every Net lease requires the tenant to pay all three property expenses. Sometimes, the tenant is only liable to cover one or two property expenses, whereas the investor needs to pay the remaining expenses. For example, a double net or NN lease requires the tenant to pay two property expenses along with the base rent. The expenses that the tenant covers in a double net lease include insurance fee and property taxes. On the other hand, the investor pays for any kind of repairing or maintenance work if required.
Similarly, in a single net lease, the tenant is only required to pay one property expense, which could either be the insurance fee or property taxes, along with the base rent. Whereas, the investor covers the other two expenses.
Benefits 1031 exchange investors receive with NNN investment
Apart from relief from property management, NNN investment provides many other benefits to 1031 investors.
Regular flow of income – The majority of NNN tenants are big established companies like Walgreens, McDonald’s, CVS, etc. Because of the presence of such business giants in the market, NNN investors enjoy a regular flow of income for a long time.
Tax Advantages – 1031 investors use NNN investment to defer capital gains tax. On account of exchanging an investment property for NNN property using a 1031 exchange, investors can defer up to 100% capital gains tax.
Diversification – Another benefit that comes with NNN investment is diversification. By investing in properties of different grades, a 1031 investor can diversify their investment portfolio. In addition, they can also acquire NNN properties that are located in a different city or state and experience geographical diversification.
What experts have to say?
For investors, who are eyeing a regular flow of income without the burden of property management, there couldn’t be any better investment structure than NNN investment. Moreover, when combined with a 1031 exchange, NNN investment gets even better. However, it’s important that you speak to an experienced 1031 exchange advisor before investing in NNN properties as it will help you prepare for the risks that may come with this investment.
To speak to a 1031 exchange advisor, you can call 888-993-2835 or email us at firstname.lastname@example.org