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Case Study: All-Cash Investor Closed on a Dollar General in 30 Days

Dollar General, Celina, Ohio

October 2019

$1.392 Million

6.7% Cap Rate

NNN Dollar General Purchased in 30 Days

An established east-coast client, who had previously purchased three properties with Chris Schellin, President and Buyer’s Advisor at Westwood Net Lease Advisors, reached out again a few months before he was ready to start the process for an all-cash, 1031 exchange. Since this buyer had already worked with Schellin, he knew he could guide him to the best deal within the 1031-exchange time constraints. However, with so many properties to choose from, how would he quickly narrow the selection, find the best one for his goals, and time it with the sale of his original property? With Schellin’s counsel, it was not only possible, but the buyer also closed on his new investment in 30 days from the sale of his original real estate and is now the owner of a Dollar General in Celina, Ohio, with a 6.7% cap rate.

TAX

The 1031 Exchange 45-Day Timeline

When considering selling a property and utilizing the 1031 exchange tax benefit, it is best to start planning and searching for properties several months prior to the actual sale of your commercial real estate, just as this client did. The IRS requires a seller to indicate, in writing, the property or properties that he or she intends to exchange (buy) within 45-days of the sale of his or her original property. Forty-five days sounds like long enough, but by the time the property inventory is searched, several are chosen and visited, a final property is agreed upon and the offer accepted, 45 days can come and go quickly.

If that deadline is missed by one day, all profits from the sale of the original property are subject to capital gains tax, which can be as high as 20%. Instead, by meeting the 45-day deadline, a seller gets to defer the tax and put that large amount of capital toward a suitable property. This buyer knew to begin the property search process in plenty of time and, using Schellin’s market knowledge and network, acquired the Dollar General (DG), which could’ve otherwise been tough to obtain as non-rural DGs are one of the most sought-after choices for triple-net (NNN) investors and they sell fast.

Calendar showing deadline with clock

All-Cash Cap Rate & Easy Monthly Income

Schellin started the process by working with this client to learn the latest financial and lifestyle objectives for his next property, which included a responsibility-free, long-term absolute NNN lease with an investment-grade tenant and a corporate-guarantee. He searched his nationwide database and industry connections, explored the best cap rates of the different classes of investments – the higher the cap rate, the higher the equity return on investment – and narrowed the choices to those that fit his buyer’s goals. Once the client settled on the Dollar General, they moved forward together to ensure the 1031 exchange rules were met and the deal closed smoothly.

When paying all cash, the cap rate compares the purchase price of the property to the income (rent) it generates. Therefore, the ROI is simply the cap rate, or rent received, as there are typically no landlord expenses. Add the many tax advantages, and this buyer’s 6.7% cap rate can ultimately amount to an 8-12% return.

To Wrap It Up – Buyer Closed the 1031 Exchange in 30 Days & Deferred Capital Gains Tax

Chris Schellin and the team at Westwood Net Lease Advisors are a single-source, full-service provider for NNN lease investments and 1031 exchanges and offer services far beyond simply connecting buyers with properties. In this case, Schellin located listed and off-market properties from his nationwide network and database, and thanks to his experience and 1031 expertise, this investor closed on a well-located Dollar General in 30 days, making the IRS’s deadline and deferring significant capital gains tax.

If you are thinking of trading up to a NNN property with a 1031 exchange, there’s no time to waste. Start the process as soon as you can and take advantage of the many buyer’s financial, tax, and time benefits that come with being proactive. Contact Chris Schellin today to learn more in a free, no-obligation consultation. 314-563-2208

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Tags: 1031 exchange, commercial real estate property, nnn lease property, property swap