#1. Dollar General, Gresham, WI
Closing date: August 7, 2020
Price: 1,170,000
Cap rate: 6.75%
#2. Dollar General, Weston, OH
Closing date: October 23, 2020
Price: $1,262,636
Cap rate: 6.60%
1031 Exchange Nets $162,309 Annually
A California-based buyer, who was selling a single-family rental in Venice Beach for $2.5 million, contacted Westwood’s President, Chris Schellin to learn about triple-net (NNN) lease investing. He also wanted to know if it was possible to use a 1031 exchange to trade a residential rental for a commercial property.
Schellin informed the buyer that he could use a 1031 to trade a residential rental for a NNN lease property, and the buying journey began. Over the course of about three months, they analyzed different types of properties and tenants that would ideally suit the buyer’s objectives and lifestyle – what was going to give him the best overall return with no maintenance or landlord responsibilities?
Turns out, two Dollar General, NNN lease properties in different states would give him just what he was looking for and an annual income he had never experienced with the rental home.
The Process – Pre-1031 Education & NNN Property Selection
Fortunately, this buyer had the insight to contact Westwood Net Lease Advisors prior to closing on the sale of his California rental home. This provided ample time to learn the NNN process, assess multiple fee-simple property options, and identify the properties he intended to buy within the 45-day, 1031-exchange rule.
When a NNN property investor waits until a property sells to begin the 1031 process, it’s often too late. The buyer may miss the IRS’s tight deadlines and the opportunity to defer thousands of dollars in capital gains tax.
Schellin showed his client a variety of asset types and tenants that fit his parameters, each with different price-points and cap rates, eventually narrowing it down to two Dollar Generals versus one higher-priced NNN property. As an added benefit, owning these reliable properties in different states would diversify his portfolio based on location, and maximize his rate of return for up to fifteen years.
The Challenges – Lack of Supply, Limited Price-Point, Time
Since the buyer wanted to pay all cash for the properties and had to work within the 1031 exchange time constraints, his options were limited by price-point and time. With NNN lease properties in high demand, there was also a lack of supply.
In cases like these, Westwood’s ability to leverage its vast network to find suitable properties is imperative. Once Schellin’s buyer determined he wanted Dollar General properties, Schellin reached out to developers and brokers with whom he had worked previously to find out if they had or knew of any properties coming to market. Additionally, Westwood’s long-standing reputation for representing quality buyers also provides their clients priority status with sellers and brokers, as it did here.
In a nation plagued by COVID-19, it may be hard to believe, but the pandemic is creating some CRE investment opportunities in the triple-net lease market. Most NNN properties sell essential goods and services and are thriving.
The Results – 2 Prime NNN Property Investments & Deferred Capital Gains Tax
For the Gresham, Wisconsin location, Schellin and his client were able to work with the developer directly and avoid competing offers, which led to contracting and closing the property within 14 days and deferring all capital gains tax.
- The investor benefits from a one-year-old Dollar General property with a corporate-guaranteed, 14-year, NNN lease that provides a higher than average cap rate of 6.75%, and a net operating income (NOI) of $78,975.
The Weston, Ohio, Dollar General was also sourced off-market through another broker and closed within the 1031 timeline, deferring all capital gains tax.
- This relatively-new, NNN property has a higher population density and operates under a 15-year, corporate-guaranteed lease, providing a cap rate of 6.60% and an NOI of $83,334.
To Wrap it Up – CRE Investor Trades Rental House for $162,309 NOI
Due to the Westwood Advantage of expertise, reach, reputation, and thorough buyer representation, this all-cash, California buyer traded a costly Venice Beach residential rental for two maintenance-free Dollar General properties that provide an income of $162,309.00 annually.
- The buyer also met his 1031-exchange responsibilities and deferred 100% of the capital gains tax from the sale of the rental home.
- He also diversified his portfolio with ownership of two quite different Dollar General properties in two states with distinct demographics, each providing a stable monthly income with zero landlord worries.
Partnering with an experienced triple-net lease buyer’s advisor with a thorough approach and a vast network is necessary to find the ideal NNN lease investment that makes the most of every dollar invested. And it costs you nothing.
If you’d like to learn more about the 1031 exchange and all the benefits of NNN investing, call or email Chris Schellin, President of Westwood Net Lease Advisors, for a free, no-obligation consultation, 314-563-2208.
