Part of investing in a triple net property is making sure you have a good exit strategy in place. Although many investors prefer to hold on to triple net properties, sometimes even passing down the property to heirs, other times selling is the right choice to make.
Whether you want to upgrade to a property with a higher net operating income, or a tenant just renewed for a long-term lease, there are several important considerations. Whatever the reason, if you decide to sell take these 5 steps before selling your triple net lease property.
1. Create a Tax Plan
Selling a triple net property means you will be liable for capital gains and other taxes. Plan beforehand by executing a 1031 exchange to defer taxes. All 1031 exchanges must occur within 180 days. Planning ahead means you will have the time you need to identify a replacement property and make any improvements necessary before you hit the time limit.
Creating a tax plan is particularly important if the property is owned by more than one owner, in which case the owners may decide to restructure the partnership before selling the property.
2. Audit Lease Files
An important consideration in the process of selling your triple net lease property is the tenant leasing the property. Before selling, you want to make the lease and any amendments or other agreements available for the buyer. Include any letters or emails received from or sent to the tenant as well.
If the tenant has right of first refusal you will need to make sure you follow the correct procedure for ensuring it is carried out properly. In right of first refusal, tenants have the right to purchase a property once it goes up for sale before another buyer.
Some right to refusal addendums are vague and only state that the tenant has a right to purchase the property before it goes out on the market. Others are quite specific and list the price for the property as well as the terms under which it will be sold.
Another type of right to refusal gives the tenant the right to match any offer presented by another buyer. This ranges between anything from a formal procedure to a simple and quick communication with the tenant.
Regardless, it is in your best interest to do your due diligence on the rules of the lease and the laws in the location of the property. Communicate clearly with the tenets through this part of the sales process, especially if they have intentions of buying the property.
3. Review Your Loan Terms
If you have a loan on the property, you will need to have a lawyer review the terms of the loan. For example, a commercial mortgage-backed security (CMBS) loan contains additional considerations for the sales process.
On the other hand, if the buyer can assume the loan, this may allow you to negotiate a higher selling price. In order for this to work, however, you will need to account for the time it will take in to complete the transaction to make sure the deal will fit within time constraints.
4. Put Together All Due Diligence Documents
Gathering together all the documents needed for due diligence in selling your triple net lease property takes time. You can make this more efficient in preparing the documents needed before you begin the selling process. Ensure you have everything a buyer needs from you in order to get a clear picture of the property before listing the property and accepting offers.
Due diligence documents include assessments, zoning reports, copies of maintenance, environmental surveys, financials on the tenant (if private) as well as store P&L’s for your individual location (if the lease allows) and more.
To Wrap Up…
Selling your triple net lease property is sometimes an investment decision that needs to be made. Follow these 4 steps to start your sales process. We recommend a team of experienced advisors working with you to help you benefit from the full value of your investment. Contact us to learn more today.1031 NNN Property, nnn lease property, selling triple net properties, triple net, Triple Net Income Property, triple net lease properties