I’m Not Looking Right Now, Not Buying, Not Selling. Should I Be?
As triple-net (NNN) lease advisors, it’s crucial to explore our buyers’ plans for immediate and long-term financial success, and just as importantly, what lifestyle factors they value. These same factors also need to be considered and revisited by you – the NNN lease investor – throughout the years. It is important to always look at NNN availabilities, even if you feel you’re not “in the market right now,” otherwise you could miss out on a golden opportunity to reach your financial and lifestyle goals faster and easier.
Why You Should Always Look for the Next NNN Option
One thing we all know for certain – in life, things change. Finances change, employment changes, family size, where you live; even things like how much you travel and your monthly income requirements – these rarely stay the same. So, what if you could go from one NNN property to two with the minimal additional monetary outlay and receive more monthly income? Maybe there’s a better investment opportunity for your goals just waiting to be had. Anything is possible, that’s why you should always look for the next NNN investment option.
If you keep an eye on available NNN properties and trends, the “perfect” investment for your new goals is much easier to find. Great properties sell fast; it’s all too common to miss a chance to trade up with a 1031 exchange or add to your portfolio with an additional property by not staying in the loop.
How Often Should You Revisit Your NNN Investments?
This is a great question and one that suits every individual differently. We recommend revisiting and reviewing your current NNN investments at least 3 times a year, some prefer quarterly, others monthly. With an absolute NNN, there will be no additional monthly or quarterly expenses and no changes in the rent until the agreed-upon rent increase stated in the lease. However, it is good practice to monitor your investments on a regular basis with consideration for the following:
Interest Rates/Financing: If you have a loan on a property, it may be wise to revisit the interest rate and financing terms to see if rates improve or if your tenant has added value the property in any way.
Tenant Financials: As a rule, you should have a lease clause that requires the tenant to provide sales figures and store performance numbers, either monthly or quarterly and be sure to watch those numbers so there are no surprises.
Tax Laws and Benefits
You may benefit from a cost-segregation study (CSS) and the cost-segregation depreciation tax law that significantly accelerates depreciation of certain building expenses. A CSS identifies and reclassifies costs that would normally be depreciated over a 27.5 or 39-year period into a much shorter depreciation period, freeing up capital for other investment opportunities. This substantially shorter depreciable tax life – possibly an immediate 100% write-off the year of purchase – helps you preserve capital, improve immediate cash flow, and achieve significant tax benefits on new and existing buildings. These benefits are also gained through asset reclassification and write-offs when an asset is sold.
It is also prudent to revisit the value of your current investment against market changes, your financial needs, and your lifestyle to see if it makes sense to sell or trade up with a 1031 exchange. This tax code gives you a tax-free advantage on the capital gains of your current property when you buy another like-kind property within six months. A few benefits of the §1031 exchange:
- Trade-up from a high-maintenance property to a low-maintenance property (from an apartment complex to a triple-net lease investment).
- Diversify your holdings by exchanging one property for two or three.
- Relocate your property investment to a more promising part of town or area of the country that is ready to boom.
- Bolster your real estate investment portfolio.
When is the Best Time to Explore Change?
All the time! Don’t wait until it’s too close to tax-time to buy or sell and scramble for tax benefits. As the only company in the nation that specializes in representing NNN buyers, we feel exploration and the potential to change your investment portfolio – whether with stocks, bonds, or NNN investment properties – is crucial to building steady wealth and should be ongoing.
The good news is – you don’t have to monitor these investments on your own. Just like it’s common practice to have a financial advisor explore market changes and keep your non-tangible investments performing in accordance with your goals, you also have that same professional advisory partnership, at no cost to you, with Westwood Net Lease Advisors.
We get to know you and your goals and have intricate knowledge of the ever-changing and fast-paced nature of the NNN market. Because there is typically a shortage of NNN properties due to their long-term, stable, income-producing nature, our advisors continuously review the national market and connect with colleagues daily to explore property options for our valued clients.
For decades, we’ve worked with the same buyers repeatedly in an advisory capacity, many who would’ve missed out on life-changing property deals if we hadn’t kept an eye on the market for them. Our advice – never stop exploring change.
How Do You Know When It’s Time to Sell?
Many factors play a role in the decision to sell. Again, this is a personal choice based on comfort level, financial need, and lifestyle goals. However, we do not recommend selling your current NNN investment without buying a new NNN property within the required timeframe for the 1031 exchange tax benefit. If you sell and do not roll the capital gains into another property, your tax liability could be significant. Here are a few factors that indicate it may be time to sell:
- You own a NN lease property and want to totally remove yourself from any responsibility by buying an absolute NNN investment.
- Other businesses and the economics around your property have changed.
- At the end of the lease term, the building requires large capital expenditures that may not add value to the property or be recouped by the next tenant.
- If you want to continue to buy and sell and acquire better NNN lease investments with the 1031 exchange for major tax benefits.
“My company had outgrown its urban manufacturing plant and the building had depreciated to almost nothing. My CPA suggested that I call Westwood Net Lease Advisors who advised me on several creative ways to use a 1031 exchange. With Westwood Net Lease Advisors help, we purchased land in the suburbs and built a new facility. After we moved in, we put our old facility on the market and sold it under a reverse construction exchange. This little piece of advice saved us $1.3 million in taxes.” – Jacob Freedberger, New York
When is the Right Time to Buy?
The NNN market has been stable and strong for the last decade and we do not anticipate a drastic change. To invest in a NNN property now, with interest rates low and cap rates stable, would be a strong financial move to diversify your portfolio.
Despite reports of decreased retail sales and stores closing, there are plenty of retailers, medical clinics, pharmacies, dining and fast-food restaurants, as well as auto parts stores, financial institutions, dollar stores, warehouse, industrial, and other companies adding locations and evolving with technology and services like omnichannel distribution.
There is also frequent talk of rising interest rates which can slow the economy, but if you choose a needs-based tenant, like dollar stores, fast-food franchises, and pharmacies, your investment will likely remain stable for the 10-20-year lease term. Cap rates also tend to lag 6-12 months behind interest rate changes, which has kept cap rates steady for the last decade. Own the right NNN lease properties and you’ll hold the key to a successful and sustainable long-term strategy.
Does it Cost Money to Use a Buyer’s Advisor?
There are no costs to the buyer when partnering with a NNN buyer’s broker or advisor. In all real estate transactions, the seller pays the commissions and fees. Compensation is built into the price of the property and takes nothing away from the buyer. Remember – the seller or seller’s agent is trying to get the highest price for their property. A buyer’s advisor is an important ally to help negotiate a realistic price, make sure there are no unidentified costs or surprises and perform due diligence on the property to ensure it is the best investment for you.
To Wrap it Up – Reach Your Goals & Always Explore the NNN Market
The best way to reach your financial and lifestyle goals within the NNN investment market is to secure the right properties for your goals and always explore opportunities. Newly available properties may suit your needs perfectly, increase your monthly income, or provide a much-needed tax break.
However, to find them and buy them before they’re gone is a time-consuming challenge. Therefore, it’s beneficial to use a reputable buyer’s advisor from Westwood Net Lease Advisors who knows the market, is well-known in the market, and can do it for you – at no cost. Contact us today for a no-obligation consultation, 314-997-5227.
