As an investment, owning a triple-net lease (NNN) property is not only a good idea, it’s a great idea! Does a passive, stable, long-term investment with a reliable, credit-worthy tenant, effortless monthly income, periodic rent increases for 10-20 years, and no maintenance responsibilities sound favorable? If so, then NNN lease investing is for you.
The Details & Advantages of NNN Lease Investing
Let’s start out by addressing the elephant in the room – brick-and-mortar businesses are said to be drying up. However, there are still retailers, medical, pharmaceutical, dining and fast-food; auto, financial institutions, dollar stores, industrial, office, and other companies adding locations and evolving with technology and services like omnichannel distribution. Investing in the right NNN lease property is the key to a successful and sustainable long-term strategy.
“In March, retail sales made their biggest jump since September 2017, with 12 of 13 categories rising,” according to Bloomberg. “The 1.6% rise signals consumers are giving the economy greater support.”
Most often, absolute triple-net lease tenants are national companies with strong credit, such as Walgreens, Dollar General, and McDonald’s. They require total control of the property – including a prime location – for uniformity across their brand. These corporations are typically consumer staples that continue to do well in an economic downturn, so they tend to be recession-proof. There is little, if any, the downside to owning a NNN lease property. Take a look at the following advantages…
- Expense-free ownership with long-term guaranteed income.
- Passive, monthly income shaped to fit geographical preferences.
- A reliable, low-risk investment.
- Preservation of wealth and stable investment diversification.
- Opportunity to build equity over the lease term.
- Permanent, tangible asset and value that will not fluctuate day-to-day.
- Annual tax benefits and 1031 exchange opportunities.
- Possibility of owning your NNN property debt-free at the end of the lease term.
- Enjoy life without actively managing and worrying about your property.
Increase Income, Preserve Capital, Diversify Your Portfolio
Maybe you’re close to retirement and want to diversify your investment portfolio, increase your monthly income, or create an estate plan to leave sustainable revenue to your children or grandchildren. If you’re a new investor building wealth while you work or want to make a career out of commercial real estate investing, triple-net lease properties are a good idea. They offer a stable and strategic way to accomplish all of these goals.
NNN investments mimic fixed-income investments by providing asset and rent growth, strong current yields (ROI), and long-term predictability – in many cases, steady cash flow for up to 20 years. They provide security of income not often found in other types of investments, such as the stock market and non-commercial real estate. Over time, you could realize 5% to 7% capitalization rates, depending on certain variables, and an internal rate of return (IRR) from 8%-24%.
For added stability, you may diversify within your own NNN investment holdings. Nationwide properties, different tenant types and asset classes, and various lease durations make for a well-apportioned portfolio.
Triple-Net Investment Tax Benefits
Cost segregation depreciation (CSD) – Depending on your property and individual tax variables, CSD could allow non-structural improvements, such as carpet, indoor and outdoor lighting, heating and cooling systems, and landscaping to be depreciated over five, seven, or 15 years, versus 27.5 or 39 years.
This substantially shorter depreciable tax life – possibly an immediate 100% write-off the year of purchase – helps NNN lease investors preserve capital, realize 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 the asset is sold. In summary, this benefit allows you to:
- Adjust the timing of deductions to maximize tax savings.
- Swiftly depreciate expenses.
- Reduce/defer current tax liability.
- Increase cash flow for other investment opportunities or operating expenses.
- Take the entire adjustment (100% on buildings purchased after September 2017) in one year.
- Re-claim deductions dating back to 1987 without having to amend tax returns.
- Create an audit/paperwork trail that satisfies the IRS’s audit techniques guide (ATG).
Section 1031 Exchange – When you sell your NNN property for another or sell other commercial property and trade-up to a NNN property, you may avoid capital gains taxes with a §1031 exchange. This tax code can defer taxes indefinitely. It is basically an interest-free loan from the government that encourages reinvestment and economic growth. This tax code allows you to:
- Trade up from a high-maintenance 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 getting ready to boom.
- Bolster your real estate investment portfolio.
To Wrap It Up – Triple-Net Lease Properties Are Great Investments
Triple-net lease properties are a great idea if you’re a high net worth investor who wants passive, low-risk investments that increase wealth. If you’re ready to look at properties, keep in mind, these are highly-desirable, often difficult to locate, and they sell fast.
To get the right properties for your goals before they’re gone, use a reputable buyer’s agent who knows the market and is well-known in the market. Our highly-experienced Westwood Net Lease Advisors have decades of expertise working with buyers and sellers all over America. We also know of properties coming to the market before they’re advertised so you don’t miss out on a single opportunity.
Westwood Net Lease Advisors is here to work with you as a buyer’s advisor from the property search to closing. We offer objective advice, education, knowledge, and advocacy – all at no cost to you. Contact us today for a no-obligation consultation, 314-997-5227.