$17 Million 1031 Exchange: Mobile Home Park Traded for 4 NNNs Providing $720,000 Annual NOI

Nov 22, 2022

4 Triple Net (NNN) Lease Properties
Closing date: May–June 2022
Price: $17 million total
NOI: $720,000+/year

$17 Million 1031 Exchange: Mobile Home Park Traded for 4 NNNs Providing $720,000 Annual NOI

Mobile home park owners ready to sell their properties often hang on to them longer than they’d like because they’re not sure what to do with the money from the sale and they don’t know how to replace the steady monthly income. Chris Schellin, President of Westwood Net Lease Advisors, has been helping mobile home park owners across the nation turn their single property investments into thriving portfolios of high-quality triple net (NNN) lease investments that provide solid returns, reliable monthly income, and worry-free maintenance.

Knowing this, Schellin was referred by an REIT that specializes in mobile home parks to a third-generation family business. They wanted to learn how to use the capital gains from the sale of their mobile home park to purchase other investment properties, creating a diversified portfolio with a suitable rate of return that met their needs.

Ultimately, this third-generation family business used the 1031 exchange to trade their mobile home park for four income-producing NNN lease properties. They deferred millions of dollars in federal capital gains taxes, and with the purchase of the following zero-responsibility properties, earn upwards of $720,000 a year in net operating income (NOI), for the next 15–20 years.

  • 2 Dollar General stores
  • 1 7-Eleven gas station/c-store
  • 1 KFC fast-food restaurant

Man stamping a contract with a "sold" stamp

The Challenge – Purchasing Multiple NNN Properties in Florida Within the 1031 Exchange Timeframe

The biggest challenge for Schellin was locating enough NNN properties for sale near the family’s home in central Florida, which is a popular no-income-tax state. To fully reinvest the $17 million in a smaller geographical area, Schellin would have to turn to his network to find pre-market, off-market, and pre-construction properties while still meeting the tight 1031 timeline.

Gaining access to and purchasing off-market listings is not something just anyone can do. But because Westwood Net Lease Advisors is known for bringing qualified, serious buyers that present serious offers, sellers and brokers trust them with off-market opportunities.

“I had my work cut out for me to help this family locate and contract around $17 million worth of triple nets very quickly in a highly competitive market and in a small geographical area,” Schellin said. “I had to work fast and be proactive in my approach to provide them a competitive edge.”

The Process – Starting the 1031 Exchange & NNN Investment Process Months BEFORE the Sale of Mobile Home Park

Schellin spent several months working with each family member individually, as well as together, prior to selling their mobile home park. He wanted to get to know them and their needs and help them understand the NNN market and the 1031 exchange process. He realized they were very risk-averse and wanted peace of mind that their money would be safe. They also wanted to replace the monthly income from the mobile home park.

They evaluated different types of NNN properties, asset classes, and industries within the triple net market and discussed the pros and cons of each. This narrowed the scope and helped expedite the 1031 exchange process immediately after the mobile home park sale closed.

Meanwhile, Schellin kept his broker, seller, and developer network informed of his clients’ intentions and was contacted by this network with two off-market Dollar Generals, both within an hour of the family’s home, one brand-new 7-Eleven in Ocala, Florida, and a KFC in Ohio run by the largest franchisee in the country with 830 units, a deal too good to pass up, even though it was out of state.

Schellin applied his expertise and an advisory approach from the first meeting to the property search and throughout the four transactions. “I had one chance to help them successfully transition from mobile home park ownership to triple nets and save them millions of dollars in federal capital gains taxes. By having first right of refusal on pre-market properties, they gained a buying advantage and the ability to meet the 1031 exchange timeline without delays,” said Schellin.

1031 exchange timeline graphic

The Result – Ownership of 4 NNN Lease Investments Provides $720,000+ Annual Net Operating Income

This 1031 exchange took place amid the tightest triple net market possibly in history, which is why contracting on these high-quality NNN properties before they hit the open market was essential. It eliminated the competition. “Had these properties gone to market, there would have been at least 20 potential buyers for each, driving the price up, creating a bidding situation, and making it much more difficult to meet the 1031 exchange timeline,” said Schellin.

As a result of Schellin’s network outreach and due diligence, within a few months of the sale of the high-maintenance mobile home park, this family closed on some of the best triple net lease brands in the country, earning upwards of $720,000 annual net operating income. They now own the following:

2 New Dollar General NNN Properties

The clients purchased two new, larger-footprint, absolute NNN lease Dollar General properties within an hour of their home in Florida, with full-term, 15-year, corporate-guaranteed leases, built-in rent escalations, and four 5-year lease extension options. Dollar General properties are 100% responsibility free and one of the most highly sought-after and highly dependable triple net investments.

One 7-Eleven NNN Property

This one was a rare gem! An under-construction NNN 7-Eleven gas station and convenience store within two hours of their home in Florida, operating with a full-term, 15-year, guaranteed, absolute triple net lease with zero responsibility, built-in rent escalations in the lease extension options. Not many 7-Eleven properties go on the market and very few are newly built, so though contracting on new construction is a risk in a 1031 exchange (it could be held up and miss the deadline for closing) it was worth it for this client to own this high-quality investment. The property was finished and closed within the 180-day deadline.

One KFC Fast-food Restaurant

A broker contacted Schellin to make him aware of a KFC in Cincinnati, Ohio, coming up for sale. Though this was not in their desired Florida market, it was a great investment with the nation’s largest, high-credit franchisee, with 830 units. This KFC carried a 20-year, absolute NNN lease, with built-in rent escalations and lease extension options for long-term, reliable monthly income, and no-hassle ownership.

This family business deferred 100% of federal capital gains taxes and federal depreciation recapture taxes (another 25%), which saved them millions of dollars on the sale of the mobile home park, and began receiving cash flow as soon as each property closed. They are at peace knowing they have a worry-free income stream that provides $720,000+ per year for the next 15 to 20+ years.

Multiple generations of a family putting money in a piggy bank

To Wrap it Up – Deferral of Capital Gains Tax on Mobile Home Park Sale & $17M NNN Portfolio Provides Steady Income & Peace of Mind

A picture of Westwood Net Lease Advisor Chris SchellinDue to Schellin’s proven track record of matching buyers with their ideal properties, and his mobile home park 1031 expertise, this family, new to NNN investing, now owns four triple net lease properties worth $17M. They deferred millions of dollars in federal capital gains tax, acquired a diverse portfolio that provides reliable, responsibility-free monthly income for 15–20 years, and can sleep at night knowing they invested safely.

If you’re thinking of selling your mobile home park or you’d simply like to learn more about the 1031 exchange and all the benefits of triple net investing, call or email Chris Schellin, President of Westwood Net Lease Advisors, for a free, no-obligation conversation, 314-563-2208.


 

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