Dollar General, Byhalia, MS
Closing date: August 5, 2020
Cap rate: 7.00%
Exchange of Single-Family Rental for No-Maintenance NNN Property
A Nevada-based husband and wife, new to commercial real estate (CRE) investing, reached out to Chris Schellin, President at Westwood Net Lease Advisors, to help them learn all about triple-net lease (NNN) investing and how to use a 1031 exchange on the sale of a rental home. Their objective was to purchase a CRE property with no maintenance responsibilities and a higher return on investment, but they didn’t know who to call or where to begin.
While researching, they came upon the Westwood website, reached out to Schellin, and began their buyer-advisor relationship. As their advisor, Schellin worked with them for a few months prior to selling, so when the time came, they knew exactly what type of property and tenant they wanted and were able to quickly close on a nearly new Dollar General in Byhalia, Mississippi.
In fact, though these all-cash buyers had a pretty basic transaction, a unique collaboration made it easier to secure such a lucrative property and close on the deal in a mere 20 days, while making the IRS’s 1031 exchange timeline without delay.
From Zero NNN Knowledge to NNN Investing Expertise in Under 90 Days
Many potential commercial real estate investors with zero NNN lease knowledge or experience shy away from moving forward due to a lack of information and comfort with the process. At Westwood, one of our pillars is to educate all clients – new and seasoned investors – in every aspect of the process, including the 1031 exchange, so there is no grey area when it comes to investing their hard-earned money. This transaction is a great example.
Schellin’s new buyers lacked NNN investment experience or knowledge, so for a few months prior to selling their single-family home, Schellin worked to help them understand the 1031 exchange and the NNN investment process. He gained an understanding of their financial and lifestyle goals, and together, they looked at all types of properties between $1–$1.5M, went over the pros and cons of each asset class, and decided a Dollar General property was the best fit for them. Within 24-hours of selling their single-family rental, this NNN Dollar General property on the outskirts of Memphis became available, and they moved forward with an offer.
Seller–Buyer Advisors’ Collaboration Benefits Both Parties
In late 2018, Phil Bundren of Westwood Net Lease Advisor sold this same Dollar General, which was then a new-construction property. Less than two years later, the owner, who had additional funds to combine with the profit from the sale of the Dollar General, wanted to purchase a more expensive fee-simple NNN property, also in a 1031 exchange, so he listed the property with Bundren. As soon as it hit the market, Schellin brought the opportunity to his buyers who knew it was the property for them.
The collaboration between Schellin, who represented the buyers, and Bundren, who represented the seller, helped complete the entire due diligence process in just 14 days. Due diligence on this property was more straightforward than usual because the seller possessed updated lease specifics, title and easement details, the Phase 1 environmental report, and the as-built survey from when he bought the property in 2018. Schellin was able to use those reports, saving the buyers time and money, and simplifying the transaction, which led to closing the deal within 20 days of contract.
In the end, this collaboration benefitted both the seller and the buyers – they met the 1031 exchange requirements, wrapped up the deal with maximum efficiency, and deferred capital gain taxes on profits from the single-family rental and the Dollar General.
To Wrap it Up – Buyer’s Advisor Helps New Investors Purchase NNN Dollar General in 1031 Exchange
With decades of experience, Westwood’s team can’t express enough the importance of calling an advisor a month or two before you list or close on any type of investment property you plan to use in a 1031 exchange, especially when new to NNN lease investing. It is critical to use that time to get comfortable with the process and the investment, know exactly what you want to purchase when the time comes and meet the strict 1031 exchange timeline to defer capital gains tax and save significant capital.
Schellin’s new buyers went from knowing nothing about CRE investing to becoming NNN investment experts who know which valuable properties to look for and which tenant types and asset classes will meet their goals. They couldn’t be happier with their NNN Dollar General property, which operates under a corporate-guaranteed lease without landlord expenses and offers $83,930 in annual net operating income (NOI).
If you’d like to learn more about the 1031 exchange and all the benefits of NNN investing, call or email Chris Schellin, President of Westwood Net Lease Advisors, for a free, no-obligation consultation, 314-563-2208.