How does collecting thousands of dollars in guaranteed monthly income from a multimillion-dollar company for 10 to 15 years sound? What if you had zero property responsibility, no maintenance, no management hassles, and no expenses? Triple-net (NNN) lease property ownership is really that easy.
As you sell or exit your business, it’s natural to want to turn to the stock market or buy high-cap-rate commercial real estate for asset accumulation. However, you may want to consider transitioning to the stability of one or more NNN investments. When you own a triple-net property leased to a major brand, like Dollar General or Walgreens, you benefit from a worry-free, recession-proof investment.
No other type of investment can provide the surety of income and freedom that a NNN investment can offer. Interested in learning more? Here’s how to comfortably transition from selling or exiting your business into a NNN lease investment.
Before We Discuss the Ease with Which You Can Invest, Let’s Talk About the Benefits of NNN Lease Investing First
If you are not familiar with NNN lease properties, they are the most dependable of CRE investments. They are not at the mercy of fluctuating daily economic perceptions, predictions, interest rates, changing laws, or politics. Why? Because most are leased by high-credit companies who offer essential goods and services that tend to thrive in all economies. They guarantee to pay the rent for 10 to 15 years and take care of everything, allowing absolute NNN lease landlords to simply collect rent and carry on with life.
If interest rates increase, the NNN market is typically not affected for six months to a year, which has kept these investments stable for decades. By the time the NNN market catches up, interest rates and other economic changes tend to even out.
Cap rates can change slightly, like right now, but with lower interest rates and financing terms, there is the potential for higher cash-on-cash returns and positive leverage. Add tax advantages and an advertised cap rate of 5.00–7.00% can ultimately become an 8.00–10.00% internal rate of return.
More ways in which triple-net lease investments build wealth include:
- 10- to 15-year guaranteed monthly income with built-in rent escalations.
- Inflation and any rising costs are covered by the incremental rent increases.
- Little to no landlord maintenance, no management, no other expenses.
- Tax opportunities that can increase your IRR and preserve capital.
- They tend to receive more favorable financing terms than non-NNN properties.
- Diversification of NNN asset types, tenant types, and locations create a dependable portfolio that can provide income and tax opportunities for decades, effortlessly.
Step 1 to Easy NNN Investing: Engage a NNN Investment Advisor & Tax Specialist as Soon as Possible When You Sell or Exit Your Business
Switching from owning a business to tenanted real estate seems like it would be straightforward enough to manage on your own, but the process can be complex, especially if real estate is part of the sale and you utilize a 1031 exchange. Entrusting the future of your wealth to an online transaction or a seller’s agent could be problematic – remember, the seller’s agent is working for the seller’s best interests, not yours.
With that in mind, if possible, before you sell or exit your business, engage an expert NNN and 1031 NNN lease advisor. When you engage a specialized advisor early on to represent your interests – at no cost to you – the process will be smoother and the result will be a safe, solid, financially sound NNN investment that meets your financial and lifestyle objectives. Without the help of professionals, you could leave money on the table, spending more time and incurring more costs than planned.
If you’ve already sold your business, and real estate is a percentage of that sale, you may utilize the 1031 exchange. In this case, you only have 45 days to legally identify the property you plan to purchase, so it’s wise to contact an advisor right away or risk paying many thousands of dollars in capital gains taxes.
With Westwood Net Lease Advisors’ representation, you benefit from:
- Learning the market and process while we advocate and work for you to find your ideal investment.
- Our expertise helps you meet the tight 1031 exchange timeline so you can defer tens of thousands of dollars in capital gains taxes.
- Westwood’s vast network of sellers, brokers, and developers for priority status with both on- and off-market opportunities – a distinct buying advantage.
- Our ability to decode inflated cap rates, negotiate a realistic price, ensure there are no unidentified costs, and perform due diligence to ensure a property is the best investment for you.
- Time saved while we structure the deal, ease transaction complications, and expose potential undisclosed details and hidden lease responsibilities.
- A network of reputable financial and other industry resources if needed.
- Prevention of transaction stress, lost time, and costly expenses that can detract from your wealth.
We have decades of experience and have helped many business owners to transition into NNN investments. One prime example is a couple who sold their plumbing warehouse business and now earns as much as $600,000 in annual income with zero landlord responsibilities.
Moreover, it is prudent to involve your CPA or tax specialist before you sell your business to learn the most current tax rules, including the Biden Administration’s plans to change thresholds and percentages for capital gains taxes and income taxes. An accountant or tax specialist will be able to work with you and your advisor to guide your NNN investing strategy.
“NNN Advisors listen to and uncover your needs, risk tolerance, and investment goals, then find solutions that fit that framework, such as using the 1031 exchange. Our advisory helps you learn and assess what properties could work and, just as importantly, which ones wouldn’t be in your best interests.” – Jason Simon, Vice President, Westwood
Step 2 to Transition into NNN Investing – Evaluate Your Finances & Income Goals
There is a general net-worth rule for NNN investors of $1 million, not including the value of your primary residence. If you don’t have a million dollars in net worth but you sell or exit your business and continue to earn $200,000 per year, you may also qualify.
In most cases, NNN lease properties start at around $1,000,000. If you take on debt to purchase a NNN property, you will be required to have a 30-40% down payment while still maintaining liquidity in your asset portfolio.
You will also want to evaluate your risk tolerance, reasons for buying, and income goals. Are you investing a portion of the profits or all the capital gains from the sale? Will you be living on the rental income? How much monthly income do you need? Does the rent need to service a debt or loan? Do you need depreciation for tax purposes? Do you want equity for collateral or financial leverage? These and other questions will help define which properties will meet your immediate and long-term income goals.
Step 3 to Transition into NNN Investing – Preserve Capital with the 1031 Exchange & Other Tax Opportunities
1031 Exchange. When real estate is a portion of the sale of a business, the percentage allocated toward the real estate could be part of a 1031 exchange, but the actual sale of the business will still incur taxes and cannot be exchanged.
Therefore, if you’re selling real estate as part of your business exit, this tax code allows you to invest the profits from the sale of the real estate into one or more investment properties within 180 days and defer 100% of the federal capital gains tax on those profits. The money you would have paid in taxes now goes to work to build wealth for you. A CPA can advise you on how to proportion the value of the real estate to the value of the business.
Real estate not included in your business sale? That’s okay. Even if you do not sell real estate to exit your business, there are other NNN investment tax opportunities that can help maximize your capital.
States with no income tax. Don’t forget to look for NNN properties in states with no income tax – Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming – as they do not impose a capital gains tax either. Colorado, Nevada, and New Mexico don’t tax capital gains, even though they have state income tax, and Montana offers a credit to offset a portion of the capital gains tax.
Not paying state income tax alone can be a savings of up to 9.9%, depending on the state. And, since absolute NNN properties are maintenance-free, it is easy to own a property in any state, no matter where you reside.
Cost segregation depreciation. Another type of tax relief on new and existing buildings is called cost segregation depreciation. This allows some nonstructural improvements such as parking lot upgrades and landscaping to be depreciated over five, seven, or 15 years, versus 39 years. CSD helps preserve capital and provide immediate cash flow.
As you can see, there are many tax opportunities to consider when purchasing a NNN investment, all of which can contribute to increasing an advertised cap rate of 5.00%–7.00% to an 8.00%–10.00% IRR.
You’re Now a NNN Investor – Earn Income & Enjoy Life
Once you’ve engaged a qualified triple-net buyer’s advisor and you work together to assess your financial goals, the income you wish to receive, and your tax opportunities, your property search will be more efficient and your purchasing power will help move you into NNN ownership more readily, often within 60 – 180 days.
Within six months of selling your business, you could be the owner of one or more NNN properties leased to investment-grade tenants such as Dollar General, Walgreens, CVS, 7-Eleven, O’Reilly Auto Parts, AutoZone, Aspen Dental, and DaVita and earn guaranteed, responsibility-free income for 10 to 15 years while you enjoy life.
To Wrap it Up – Sell Your Business, Transition into NNNs with a 1031 Exchange
If you are in the process of exiting or selling your business and you’re interested in purchasing NNN investments, there’s no time to waste. Especially if you use the 1031 exchange, that 45-day identification requirement sneaks up fast.
Since NNN property investments are strong investments with less risk, many types of investors are switching over to NNNs. They are highly desirable, often difficult to locate, and selling fast. Due to looming tax changes, major brands thriving, and buyers trying to complete their 1031 exchanges, the 2021 market is exceptionally tight, making it even more imperative to work with an experienced advisor.
Westwood Net Lease Advisors are here to help you locate the perfect property for your goals, then work closely with you and all parties concerned to free up your time, meet the tax deadlines, help avoid mistakes, and provide peace of mind that your investment is sound – all at no cost to you. Contact us today for your no-obligation consultation and see where the NNN investment market can take you. 314-997-5227