With the rollercoaster economy, pandemic, and political climate, it may seem like holding onto your triple net (NNN) lease property investment is the smart thing to do. However, the exceptionally strong NNN market and forthcoming tax policy changes make Q4 2021 a good time to sell.
Reasons to Sell Your NNN Property Now
The NNN investment market has a lot going for it right now. Real estate investors can’t seem to get enough of these reliable properties, so sellers are selling at record pace. If you were to sell now and use the 1031 exchange to trade up to one or more NNN investments with longer leases, new construction, or in an up-and-coming community, you could benefit from a seller’s market and 100% of the 1031 capital gains tax deferral benefit.
Still not sure now is a good time to sell your NNN property and reinvest? Take a look at why investors and 1031 exchange buyers are flocking to purchase reliable NNN properties – you’ll see many of the same reasons you purchased your current NNN property.
Reasons to sell your NNN property now:
- The fickle stock market is inspiring stock market investors to transition to NNNs.
- As business owners sell their businesses or close for good, they’re transitioning to NNNs.
- Apartment complex/residential rental owners are selling up to no-maintenance absolute NNNs.
- NNN investors are benefitting from historically low commercial mortgage interest rates.
- Cap rates remain competitive, between 5.00%–6.50%.
- Long-term leases offer guaranteed income for 10–15 years.
- NNN properties offer the internal rate of return (IRR) potential of 7–10%.
- 1031 exchange buyers must act fast and are often willing to pay a premium to lock up.
- For now, the 1031 exchange tax code offers maximum tax deferral (tax reform could limit 1031 deferrals on gains above $500,000).
Nobody knows what 2022 will bring economically, politically, or with the pandemic. With interest rates low, cap rates holding steady, tax opportunities unchanged, essential retailers and other NNN tenants growing and adding locations, this may be one of the best times to sell your commercial real estate or triple net lease property, then use the capital gains to purchase one or more of these dependable, income-producing properties that you can rely on for years to come.
Near record-low interest rates combined with essential retailers’ growth are fueling demand from buyers for NNN assets in a coronavirus world. Likewise, buyers seeking value and higher positive leverage are also driving high demand of non-essential retailers, creating a market benefiting both buyers and sellers.” – Jason Simon, Westwood Vice President
How do You Know if It’s Time to Sell NNN?
How do you know if it’s time to sell your NNN investment? There could be any number of reasons you’re considering selling, but if you’re sitting on the fence about when to sell, these four conditions will help you get top dollar and could make this a great time to list your property.
Ideal Conditions for Listing Your NNN Property
- If your property was recently built out or improved by the tenant, it is much more marketable. Property improvements don’t stay “new” long, so take advantage of the curb appeal for maximum capital gains.
- When your major-brand NNN tenant signs a new, long-term lease, the property’s value goes up. If you tried to sell with four years left on the lease versus ten years, you would see a large difference in the sales price. The worth of the asset is based on the tenant’s credit, length of lease and lease type, so it is optimal to sell with more years remaining on the lease.
- Maybe you’ve decided to sell one NNN property and purchase additional NNN properties to diversify your portfolio. If so, selling would allow you to use the 1031 exchange to trade up and use the tax-deferred capital gains to invest in one or more NNNs.
- Do you have an assumable mortgage with a debt-to-interest yield that could create positive leverage for the new buyer? This benefit also adds value when selling.
What if you need to sell and your tenant only has a few years left on the lease or the building is old? At the time of this writing, NNNs are selling lightning-fast, regardless of lease duration and property condition. The conditions above are optimal for getting the highest price possible, but if the tenant is a high-credit, essential business, the lease is guaranteed, and there are lease extension options with rental increases, buyers will buy. But don’t wait too long to sell – as the year comes to a close, we simply cannot predict what will happen with the market.
To Wrap It Up – Now is a Good Time to Sell NNN & Use the 1031 Exchange
It can be a difficult decision to hold on to real estate or sell, especially when it comes to NNN investments. They are such solid, income-producing investments, selling can present a true dilemma.
However, to help you decide, we feel now is a good time to sell and use the 1031 exchange to defer the capital gains tax while the market is hot, and the tax code still offers the maximum benefit. Not sure how to start the process?
Westwood Net Lease Advisors, with decades of NNN and 1031 experience, are here to help evaluate every factor in your selling/buying scenario, analyze the benefits, and just as importantly, explain the drawbacks to selling based on your exact situation, so you can make the right decision for you.
Westwood Advisors Operate in an Advisory Capacity with No Obligation
Selling a NNN and reinvesting is a big decision with a large amount of capital at stake – Westwood advisors are here to ensure you make the best decision for your financial future. We will represent you and your best interests in the selling/buying process, from start to finish and operate in an advisory capacity. If you have questions about selling your CRE or NNN property, our consultations are free, with no obligation. Contact us today. 314-997-5227