Should you mix NNN investment with 1031 Exchange?

Net Lease property

1031 investors often look for different investment options using which they can close their 1031 exchange. Investment structures such as a DST, TIC, or NNN investment can be used for closing a 1031 exchange. However, each of these investment structures is entirely different from the other and must be handled accordingly.

What is a NNN Lease?

A NNN lease is a single-tenant arrangement that requires the tenant to pay all operating expenses instead of the investor or property owner. Under a NNN lease, the tenants pay three major operating expenses, such as insurance fee, property taxes, and maintenance expenditure on the property they’ve rented. This kind of investment requires long term commitment and may lock the tenant for 10-15 years.

Benefits of NNN investment:

  • Freedom from property management – Managing real estate properties isn’t that easy, as it requires significant time and money. A NNN lease removes this burden from an investor’s shoulders by asking the tenant to pay for the maintenance of the property.
  • Increased Cash Flow – A NNN property, located in an improved area, is likely to generate more revenue. Moreover, using a 1031 exchange, an investor can also exchange a depreciated land for a new NNN property. Consequently, the new property will generate more revenue than the depreciated property.
  • Tax advantages – Another advantage of a NNN investment is that it can allow investors to defer capital gains tax if mixed with a 1031 exchange. An investor can acquire a NNN property as their 1031 replacement property and defer capital gains tax.
  • Equity appreciation – There is no doubt in the fact that the real estate market is growing unceasingly with time. The cost of properties is sky-rocketing day after day. The current market value of your NNN property is like to soar in the future.

How you can use NNN investment to close your 1031 exchange?

The number of 1031 investors has gradually increased over the years. The reason is obvious – more and more investors are eyeing tax deferment on property exchange. As per 1031 exchange rules, an investor can defer up to 100% capital gains tax on exchanging an investment property for another like-kind property. This lets investors exchange any investment property for another. Similarly, you can also use a 1031 exchange and trade your old investment property for a new NNN property. The steps are –

  • Identify the investment property you want to relinquish and list it for sale.
  • Enter into a 1031 exchange agreement along with a Qualified Intermediary.
  • Close on the sale of your relinquished property and transfer the proceeds to the Qualified Intermediary.
  • Identify any number of NNN properties (keeping the 1031 exchange property rules in mind) within 45 days.
  • Buy the same as your 1031 exchange replacement property within 180 days.

As you can see, getting hold of a NNN property isn’t that difficult. However, it certainly requires calculation in advance and proper risk management against potential financial threats. To help you with this, we have a team of experienced 1031 exchange experts who will guide to throughout your 1031 exchange.   

For consultation and assistance regarding 1031 Exchanges, you can call – 888-993-2835 or email us at

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