Did you know, if you sell your mobile home park investment, you can reinvest the income into triple net lease properties and defer paying federal capital gains taxes with the 1031 exchange? Transitioning to absolute triple nets using this tax code is one way to keep your money working for you, possibly indefinitely, while enjoying a responsibility-free, expense-free landlord lifestyle.
If you’ve been considering selling your mobile home park but you’re still undecided, keep reading.
Why Sell Your Mobile Home Park & Buy Triple Nets?
The biggest complaint from mobile home park investors who do not own the trailers themselves, just the land, is that the tenants don’t keep up with the repairs and maintenance needed on their trailers, nor do they take care of the property the trailers sit on. This creates a rundown park, which hinders the amount of rent the owner can ask for, as well as potential residents passing up the chance to live there.
For mobile home park investors who also own the trailers, constant and costly maintenance can rapidly decrease any return on investment (ROI) and create a high-stress lifestyle.
Additionally, owners incur the costs and time involved with:
- Tenant credit checks, lease management, and rent collection.
- Making sure mobile homes are not falling apart, rusty, or otherwise in disrepair.
- Dealing with potential code violations if trailers aren’t in good shape.
- Managing the utilities.
- Maintaining the grounds, outdoor lighting, signage, and parking lot areas.
- Keeping the roads in good shape and depending on the location, plowing in the winter.
- Upkeep on common areas, storm shelters, picnic areas, lakes/ponds, which must also meet local safety codes.
- Employing an on-site park manager to handle all community upkeep and issues.
Triple net investments, by comparison, can offer completely responsibility-free ownership, guaranteed monthly income for 10 to 20 years, a potential 7–10% internal rate of return (IRR), and lifestyle freedom.
Absolute Triple Net Lease Investment Benefits
When you own an absolute triple net lease property, you don’t pay for anything. The tenant agrees to a long-term lease that requires paying the “net” amount for three types of costs – net real estate taxes, net building insurance, and net common area maintenance (CAM). They also take care of the structure.
Being a triple net landlord means you don’t have to worry about rent not being paid, evictions, or dealing with a less-than-ideal tenant situation. Triple net tenants are usually investment-grade corporations worth billions of dollars, such as Dollar General, Walgreens, and 7-Eleven, that sell essential, pandemic-proof goods and services. They’re not going to suddenly disappear or stop paying rent. In fact, just the opposite. They guarantee the lease, which means rent is paid no matter what – even if the building burns down or the business is unable to stay open.
Another benefit of triple net ownership is that potential rising costs and inflation are usually accounted for in the lease. NNN tenants typically build in rent escalations just for this reason.
Triple net investments offer many financial benefits, as well as the peace of mind knowing your asset is being cared for and your income is secure for the next decade or more.
Benefits of Triple Nets
- They tend to be easier to mortgage and receive lower interest rates than higher-risk real estate.
- Depending on how you purchase, the cap rate spread can lead to a higher cash-on-cash return, potentially creating positive leverage.
- Tax opportunities and incremental rent increases can turn a 5.00% cap rate into a 7–10% IRR.
- You can enjoy passive, guaranteed monthly income from anywhere in the country.
- Ownership of a tangible asset with value that will not fluctuate day-to-day like other types of investments.
- You can build wealth and preserve wealth with stable investment diversification.
It’s important to note, there are some triple net leases that are not absolute. They are called modified NNNs or double-net (NN) leases. In this instance, everything is the same except there may be a lease clause that requires landlord responsibility of roof, structure, and parking lot. Most often, these few responsibilities are a non-issue.
Use the 1031 Exchange to Transition from Mobile Home Park Investing into Triple Net Investing
If you’re ready to be rid of the headaches and costs associated with mobile home park investing, there is good news. These parks and manufactured housing developments are desirable to real estate investment trusts (REITs) and corporations, paving the way for a straightforward sale.
Once you sell, you can transition into triple net properties using the 1031 exchange. This tax code allows you to trade any income-producing property or land for another, and defer 100% of the federal capital gains taxes.
That means your mobile home park – whether you own just the land or both the land and the trailers – can be replaced by one or a combination of triple nets, such as fast-food restaurants, dollar stores, auto parts stores, gas stations, child care assets, car washes, drugstores, and more.
To perform a 1031, you will need the help of an experienced buyer’s advisor. There are strict regulations on the 1031 exchange process, the professionals required to complete the process, and a tight timeline.
To Wrap it Up – Transitioning from Mobile Home Park Real Estate Investing to Triple Net Investing Has Many Benefits
It is true that mobile home park real estate investing can be considered easy and low-risk, but these parks require maintenance and upkeep and carry unpredictable expenses. No matter how nice and new your mobile home park is, it still demands some landlord involvement, which eats into your ROI.
Transitioning from mobile home park real estate investing to triple net investing has many benefits. No other type of commercial real estate or stock market investment provides the stability, long-term, guaranteed income with predictable escalations, and the financial and lifestyle freedom that triple net lease properties offer.
Westwood Net Lease Advisors is here to help you begin NNN investing with ease. We have represented several mobile home clients recently and know how to help you use the 1031 exchange to purchase properties that provide the income and return on investment you are hoping for, and ensure you know what your NNN financial future will hold, all at no cost to you. Contact us today for a no-obligation conversation. 314-997-5227