Answers to Common NNN Lease Questions

The easiest way to begin your NNN buying process is to contact a Westwood Net Lease Advisor. Our consultations are free and there is no obligation. We are here to help and want you to feel comfortable and supported, whether you are ready to NNN invest now or later.  

When purchasing investment real estate, engaging a Westwood Net Lease Advisor costs you nothing. Much like with residential real estate, the cost is already factored into the price of the property and paid by the seller.

A 1031 exchange allows you to invest profits from the sale of one investment property into a similar or “like-kind” and often more valuable property within 180-days, and defer 100% of the federal capital gains taxes. Using a 1031 exchange, you can trade any type of investment property for another, including:

• Residential rental
• Multi-tenant property
• Gross lease property
• Vacant land
• Office complex
• Warehouse/distribution center
• Industrial
• Underperforming commercial property
• Net lease property coming to the end of the lease term

You will need the help of team of professionals to administer a 1031 exchange.

The net-worth threshold to invest is usually $1 million, plus additional asset liquidity.

Yes, you need a down payment if you are financing the property, typically 30%–40%.

Yes. You can be an all-cash buyer.

The potential benefits of securing a mortgage with a low interest rate can increase ROI, or Cash-on-Cash (CoC) return, financial leverage, and most importantly, increase basis that could be used for additional depreciation.

Though every property has different characteristics that determine the cap rate, they typically fall between 4.50%–6.50%.

Typically, the average IRR is 7%–10%. This will vary on a variety of factors including tax advantages and market conditions for financing.

You have 45 days to identify, in writing, the new property you wish to buy, and must close on it within 180 days of selling your original property.

Yes, you can use the 1031 exchange if the residential property is not a primary residence.

This is different for everyone. Speak with your CPA for the best tax advantage opportunities.

Selling 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.

Yes. That would be done through a Ground Lease, in which the tenant rents the parcel of land and takes care of it in its entirety, for up to 25 years.

It can be greatly beneficial to diversify with different tenant types, asset classes, lease terms, and geographical locations. This lowers risk and adds stability.

Absolute NNN properties are 100% maintenance-free. Regular triple net properties can have some form of landlord responsibility, such as roof, structure, and parking lot.

CAM, or common area maintenance, charges are operating costs charged in addition to the base rent for exactly what the title implies – maintenance fees for work performed and upkeep on the common areas of a property, such as parking lots, outdoor lighting, and landscaping. CAM can include but is not limited to:

• Sewer, plumbing, electrical
• Snow removal
• Trash removal
• Janitorial and pest control services
• Security
• Liability insurance
• Insurance
• Real estate taxes
• Center signage
• Common area utilities
• Common area HVAC maintenance
• Landlord’s administrative/property manager costs
• Reserve funds

CAM can also include capital expenditures like repaving a parking lot or replacing an HVAC unit, as well as system depreciation.

As soon as you begin contemplating NNN investing. It is never too early to learn and take advantage of what the market is offering. Engaging a reputable buyer’s advisor before you begin the property search provides advantages and helps you choose the most ideal investment for your goals.

The answer depends on your long-term CRE investment strategy, how many properties you plan to buy, if you could benefit from investing with others, and if you want the tax structure an LLC offers. The most beneficial reasons to form an LLC are to protect personal assets, realize unique tax benefits, and if in a group, have access to more capital.

From before the property search until you get to the closing table and sometimes thereafter, there are multiple actions that must be taken to protect yourself from making an expensive mistake — most of which cannot be accomplished with CRE software.

For a low-risk investment, guaranteed monthly income with fixed increases, and the benefits of owning a tangible asset that can be sold at any time, turn to triple net lease investments rather than the stock market. If you want all of the aforementioned and the peace of mind of knowing your tenant will pay you no matter what is happening in the economy, then NNN property ownership is a far better option to fulfill those goals than the stock market.

A sale-leaseback is a real estate transaction in which a business owner, developer, or corporation sells its property to an investor and leases it back with a long-term, triple net lease, keeping control of operations while becoming the tenant.

A blanket mortgage allows you to get a loan from one lender with one set of terms and make one payment for all your real estate. It allows you to buy, hold, sell, or replace various properties under one mortgage without triggering a due-on-sale clause.

When you own more than one investment property, there are benefits to utilizing a blanket loan, starting with a simplified process that frees up time and money, and goes on to potentially help you expand your real estate empire. Your CPA is the best person to help you understand if a blanket mortgage is right for you.

There is no one “right” calculation. If you understand the difference between the following calculations and utilize the figures to determine if an investment has the potential you think it does, then you’ll have a better chance of knowing what you’re getting as you go forward with your property search.

• Cash-on-Cash Return measures pre-tax cash flow against your initial investment and shows what percentage of your initial investment is being returned to you on an annual basis.
• Cap Rate simply compares the purchase price of the property to the income (rent) it generates.
• IRR gives you the yearly return on equity after adjusting for expenses, rents, loan payments, and tax opportunities.
• ROI measures how much profit is made on an ongoing basis.

There are many states with no income tax or capital gains taxes and some with lower taxes than others, just as there are states with higher cap rates and more growth. There are overlooked locations with competitive returns; primary, secondary, and tertiary locations, as well as different class ratings (A,B,C). 

This is when a buyer’s advisor helps tremendously. Location is critical to the success of your investment.