1031 Exchange: New Investor Acquires 2 Triple-Net Gas Station/Convenience Stores Providing $165K Annual NOI

Dec 16, 2021 | Blog, Success Stories

Mountain Express Oil Company Portfolio, OH
July 2021
$2,441,650
6.77% cap rate

In May 2021, a California-based commercial real estate investor planning to sell his high-maintenance, multifamily apartments contacted Westwood Net Lease Advisors for assistance utilizing a 1031 exchange to purchase triple net (NNN) properties.

Learn how, within two months of working with his Westwood team, Phil Bundren and Vince Vatterott, this client became the proud owner of two maintenance-free Mountain Express gas station/convenience store properties that generate over $165,000 annual NOI for the next 20+ years.

The Challenge – Selling Multifamily Property & Buying the Right NNN Property in the Limited 1031 Exchange Timeframe

This seasoned commercial real estate investor was new to the NNN market and challenged by the 1031 exchange timing. How could he sell his multi-unit property, choose his next property from a nationwide inventory, and buy within the required timeframe of 180 days? He also planned to finance a portion of the NNN property, which, depending on the level of risk inherent with the property, could have been an issue.

After further research, the buyer soon realized it was best to reach out to Westwood Net Lease Advisors well before his apartment complex sold to create an investment strategy, learn more about the process, and look at a pin-pointed selection of profitable income-producing properties that would satisfy his 1031 exchange and his financial goals.

Commercial real estate advisor showing graphs and charts to buyers

The Process – Getting to Know the Buyer & His Goals, Walking Him Through the 1031 Process, and Flying to Site Visits to Secure His Ideal NNN

Prior to the Sale of  Buyer’s Original Multitenant Property

When this investor reached out to Westwood Net Lease Advisors, over about two months, Bundren and Vatterott:

  • Got to know him well and learn his goals.
  • Performed an evaluation and a risk tolerance assessment.
  • Explored the best prices, cap rates, and different classes of investment opportunities that made sense for his objectives.
  • Pre-qualified him and encouraged him to start the commercial mortgage process.
  • Connected him with a mortgage broker.
  • Shared available properties that closely fit his criteria, including zero landlord responsibility – some he hadn’t considered, like gas stations/convenience stores.
  • Throughout the process, Bundren and Vatterott offered objective advice, education, knowledge, and advocacy, until his apartment complex was under contract.

Once the Sale of Multitenant Property Closed, the 1031 Exchange Could Begin

Once the client’s multifamily property was sold, the buyer was ready to move forward with his 1031 exchange. Out of the property selection that fit his goals, he had chosen two Mountain Express gas station/convenience store properties outside of Cleveland, Ohio. Both offered strong cap rates and 20-year, guaranteed absolute NNN leases with 1.5% annual rental increases.

However, for the investor to feel comfortable making an offer on each property, he wanted to visit each site in person, which meant if he didn’t get there quickly, he might lose this strong opportunity. Additionally:

  • The buyer only had 45 days from the sale of his multifamily property to identify, to the IRS, his intended properties for purchase.

Knowing time was of the essence, Bundren and Vatterott kept in close contact with the seller’s broker to keep him informed of their client’s intent and arranged to fly to Cleveland from their headquarters in St. Louis, Missouri, while their client flew in from Los Angeles. They spent an entire day visiting several properties, buying things in the convenience stores, and interacting with staff.

To everyone’s satisfaction, the 2-unit gas station/convenience store portfolio fit the buyer’s criteria, he presented a Letter of Intent (LOI) and made an offer on each. Bundren and Vatterott moved ahead with due diligence and the rest of the process on their client’s behalf, while the client secured a commercial mortgage with a very low interest rate, which boosted his cash-on-cash return.

Your cash-on-cash (CoC) return indicates how quickly you will recover your initial investment. CoC measures pre-tax cash flow against your initial investment and shows what percentage of your initial investment is returned to you on an annual basis.
Person putting coins on stack with an arrow showing upward progression

The Result – A High Cash-on-Cash Return & 20 Years of Stable, Hands-free Income with Mountain Express Gas Stations

Thanks to the Westwood team’s expertise and thorough representation, which they provide to buyers at no charge, Bundren’s and Vatterott’s client:

  1. Met his 1031 exchange requirements and deferred hundreds of thousands of dollars in capital gains taxes on the sale of his multitenant property.
  2. Acquired two profitable, stable gas station/convenience store properties with absolute, corporate-guaranteed leases.
  3. Now enjoys 20 years or more of hassle-free monthly income with annual rent escalations, over $165,000 in annual NOI, and a high cash-on-cash return.

To Wrap it Up – Another Successful 1031 Exchange

Phillip Bundren AdvisorVince VatterottBy means of Bundren’s and Vatterott’s triple net and 1031 expertise, this new NNN investor acquired two reliable gas station properties, which he may not have otherwise found in an extremely tight market, and deferred all capital gains taxes – money that now works for him and his future.

If you are interested in learning more about NNN lease investments or would like to use the 1031 exchange to trade an underperforming or high-maintenance property for one that offers nothing but benefits, contact Phil Bundren, 314.563.2203, or Vince Vatterott, 314.563.2204, for a free, no-obligation conversation.


 

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