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Home » Blog » Case Study: NNN Dollar General 3-Property Portfolio Part of $9M 1031 Exchange

Case Study: NNN Dollar General 3-Property Portfolio Part of $9M 1031 Exchange

dollar general store

Dollar General Portfolio, 3 Alabama Locations

Closing date: June 4, 2020
Price: $3.4 million
Cap rate: 7.15%

New Investors Turn to Beneficial NNN Properties to Meet Their Long-Term Financial Goals in 1031 Exchange

New and experienced investors are increasingly turning to responsibility-free, long-term, triple-net (NNN) lease property investments that provide reliable monthly income, just as this California-based couple chose to do. They decided to sell their plumbing distribution warehouse and wisely realized before the business was under a sales contract, they needed time to look at their financials and work with an experienced buyer’s advisor who could help them utilize a 1031 exchange to move forward with NNN investing.

Their biggest concerns were how to defer the capital gain tax on the profit from the sale and would they find enough quality properties to invest the whole $9 million within the 1031 exchange tight timeframe.

They reached out to Chris Schellin, President and Buyer’s Advisor at Westwood Net Lease Advisors, to learn more. On June 4, 2020, these cash buyers used the 1031 exchange and closed on the first three of seven Dollar General properties totaling $3.4 million with a cap rate of 7.15%.

The Process, The Challenge, & 1031 Exchange Timeline

For the first few months of the year, Schellin spent time getting to know the buyers and their goals, and educated them on the different NNN lease options and the investment process, before they sold their property. As with any new NNN investor, especially those utilizing the 1031 exchange, it was important to give them plenty of time to learn the ins-and-outs of the process, decide on the right properties for their goals, and be able to designate, in writing, the properties they intended to buy within the IRS’s 45-day window of selling their original property.

The buyers expressed concern that with $9 million to invest, they wouldn’t find enough quality NNN lease properties to purchase in time to meet the IRS’s deadline of closing on all properties within 180 days.

Schellin explained that he would locate properties that met their criteria of long-term, reliable monthly income, corporate-guaranteed leases, and maintenance-free, recession-resistant tenants by utilizing his vast industry network and proprietary database, which is exactly how he found this Dollar General portfolio of properties.

All three Dollar General stores were in slightly different geographical areas within Alabama, which made the investment package desirable for diversifying their property holdings based on location. The tenants had over eleven years left on each lease with five-year extension options, so the buyers’ long-term income requirement was met. Additionally, with this portfolio, the buyers would achieve a higher than average cap rate. They were able to move ahead with identifying the Dollar General properties for purchase within the 45 days required and closed within the 180-day, 1031 exchange deadline.

To better understand how the §1031 exchange works, here is a quick rundown.

  • The property sold and the property purchased must be used in a trade, business, or for investment purposes.
  • The proceeds from the sale of original property must be handled/held by a qualified intermediary, usually a title insurance company.
  • Buyer may identify three or more properties as possible replacements for old property.
  • If more than three properties, the combined value cannot exceed 200% of the value of old property.
  • Investor must purchase at least 95% of the combined value of all properties listed as replacements for sold property.
  • If obtaining debt, the level of debt on new property must be equal to or higher than the level of debt on old property.
  • Buyer has 45 days after the sale of old property to identify or buy the new property.
  • Investor must own the new property within 180 days of the sale of the old property or by the due date for his/her tax return for the year in which the transfer of the old property takes place, whichever arrives first.
  • Any profit from the original sale that is not reinvested in the new property will be taxed.

The Result: New Investors Benefit from 100% Deferred Capital Gains Tax

Had this new NNN investor couple not contacted Schellin when they did, they would likely not have secured these three lucrative Dollar General properties and the four others they closed on a few weeks later (stay tuned for those newly published studies), nor would they have met the 1031 exchange rules. They may have even lost money – money that now continues to work for them – by paying a large sum to capital gains tax, which they deferred, possibly indefinitely.

To Wrap it Up – Investors Turn to Stable NNN Properties for Worry-Free Income

With Schellin’s support and representation, these new investors met their financial objectives at a comfortable pace. They now own a selection of top NNN lease properties and benefit from long-term lease guarantees, annual tax advantages, and many years of stable, worry-free income.

Chris Schellin and the others at Westwood Net Lease Advisors are known for making the best deals for their new and experienced buyers, ensuring they are educated and fully represented from the very beginning of the process to closing, at no cost to the buyers.

For more NNN investment information and a free, no-obligation consultation, call or email Chris Schellin, President of Westwood Net Lease Advisors, at 314-563-2208.

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Tags: 1031 exchange investments, 1031 NNN Property, Dollar General Property