How do You Know When It’s Time to Transition from Residential, Multi-family CRE to NNN Investments?

May 20, 2021 | Blog

When the responsibility, unpredictability, and hands-on nature of owning residential investments — rental homes, multifamily properties, or apartment complexes — becomes too much, it may be time to transition into maintenance-free, expense-free, absolute triple net (NNN) lease investments. Very few types of commercial real estate (CRE) can provide the surety of income and freedom that a NNN investment can offer.

The following factors will help you make the decision to comfortably transition from owning residential rentals, a multifamily property, or an apartment complex into a NNN lease investment.

photo of briarwood apartments in little rock arkansas

The Difference Between Residential Rentals & NNN Investments

Before you transition out of owning a residential rental complex, it’s important to understand the difference between multifamily rentals and triple-net lease investments, and why NNNs can be a lower-risk investment option compared to other types of CRE.

Residential & Multifamily Rentals vs. Single-Tenant NNN Properties

If you own multifamily properties, you understand how expensive, labor-intensive, and unpredictable these investments can be. You are paying the property taxes, insurance, operating expenses, maintenance costs, management expenses, and for building, structural, roof, landscaping, and parking lot repairs.

Add inflation, the fluctuating costs of goods and services, and unforeseen maintenance/management costs, and by the time a one-year lease is up, the pro-rata share of estimated expenses paid by your tenants is often less than what you’re actually paying. What should be a 9–11% internal rate of return (IRR) often becomes a 5% to 7% return, with lost time and less lifestyle freedom than you ever imagined.

Now, imagine receiving reliable, monthly income from a major brand that offers essential goods and services for the next 10 to 15 years, with little to no responsibility. These brands are high-credit companies that guarantee the lease. Additionally, what starts as an advertised cap rate of 5.00–7.00% could become an 8–10% internal rate of return, depending on financing terms and tax opportunities. With a single-tenant NNN lease property investment, you simply collect income and carry on with life.

NNN Benefits You Won’t Get with Multitenant Properties:

  • Less risk: recession-resistant tenant with a corporate-guaranteed lease.
  • Long-term, 100% income reliability.
  • Hands-off investment; own anywhere in the country.
  • No tenant hassles or unexpected costs.

Roll of money on top of more money

Absolute NNN Property Investments Allow You to Preserve Wealth with Ease

Building wealth with multifamily rentals and apartment complexes is labor-intensive, cost-prohibitive, and complicated. Aside from the ongoing management and unexpected costs that range into the tens-of-thousands of dollars, the ongoing accounting and tax services also create stress and detract from any additional investment capital.

At Westwood Net Lease Advisors, we’re helping more and more commercial real estate investors make the switch from high-maintenance, multifamily rentals and apartment complexes to NNNs because they come to realize how much easier it is to build and preserve wealth with triple nets.

Tax-saving Opportunities

Cost segregation depreciation (CSD), the 1031 exchange, and other tax opportunities can boost the return on your investment (ROI) and overall IRR much higher than the advertised cap rate.

Favorable Financing Terms

Since absolute NNNs often receive lower interest rates, this encourages an interest-to-yield rate spread that pays down the loan and, on occasion, creates an increasing cash-on-cash (CoC) return with positive leverage.

Diversification

Diversifying with NNN asset, tenant, and location types also balances risk with reward, limits volatility, and helps preserve wealth. Always in demand, the ability to buy and sell rather quickly makes for a more comfortable investment decision. Additionally, the market has remained stable for decades while triple-net tenants continue to evolve with the market’s needs.

These and other advantages put NNNs in line with other fixed-income investments and funds and ahead of other types of commercial real estate when it comes to preserving wealth for generations to come.

If you feel more enthusiastic about selling your residential rentals or trading up with a 1031 exchange to one or more NNN properties, then it may be time to transition out of multifamily CRE and into a single-tenant NNN.

How do you go about making the switch? It is as simple as contacting a specialized NNN lease advisor.

The IRR gives you the yearly return on equity after all expenses (of which there are none with NNN) along with increased rents, if any, and adjustments for loan payments. In the future, if you decide to sell, this allows you to truly see what you gained or lost from the beginning to the end of your investment time period.

A amn, woman, and businessman at a table looking over documents

NNN Lease Advisors Offer Buyer Representation at No Charge

When you engage an expert NNN lease advisor to represent your interests, the buying process will be smoother, resulting in a safe, financially sound NNN investment that meets your financial and lifestyle objectives. We do everything with and for you, from the pre-property search all the way through closing to ensure you obtain a suitable deal with the least amount of time invested.

With Westwood Net Lease Advisors’ buyer representation, at no cost to you, you benefit from learning the market and process while we advocate and work to find your ideal investment. Additionally, Westwood’s vast network of sellers, brokers, and developers provides priority status with both on- and off-market opportunities – a distinct buying advantage, especially in the tight NNN market.

Without the help of a professional NNN and 1031 advisor, you could leave money on the table, spending more time and incurring more costs than necessary.

There is no simpler way to transition from a residential rental to a NNN property and get into the strongest, most profitable investment. By engaging a Westwood buyer’s advisor, you will save time, and prevent transaction stress and costly expenses that can detract from your wealth while we structure the deal and ease potential transaction complications.

Dice that say profit, loss, risk

To Wrap it Up – How to Transition from Residential Rentals to NNN Investments

Now that you know the benefits of NNNs, the details of how to transition from residential rentals to triple-net investments, and how you can build wealth by making the switch, has it inspired you to take a look at your options?

Transitioning from high-maintenance properties to low- or no-maintenance NNNs is easier than most people realize. Once you make the decision to sell your apartment complex or home rentals, all you have to do is reach out to a Westwood Net Lease Advisor to get the ball rolling.

Even though you are already a CRE investor, our specialization in NNNs and 1031s will ensure you get the right NNN property for your goals without complications. Our no-obligation conversations are free; we encourage you to contact an advisor today to earn what triple-net investing can do for you. 314-997-5227


 

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