Managing an investment property could develop into pain along with the passage of time. As the property grows old, the investor or property owner needs to invest more time and money in managing it. Due to the ever-growing burden of property management, many investors choose to sell their investment properties rather than holding it any further. This is the time when investors must do their research and come up with an investment plan that not only removes the burden of property management from their shoulders but also yield greater returns than what the relinquished property was producing. NNN investment provides all these benefits and much more. Or you can also invest in TICs. A TIC has shared ownership where you co-own a property along with other investors. To know more about TICs, you can speak to a TIC 1031 Exchange advisor.
Triple-Net Lease helps you get rid of property management.
A NNN lease or a triple-net lease is a single-tenant arrangement that requires the tenant to pay necessary property expenses instead of the investor or property owner. In a triple-net lease, the tenant is responsible for paying all kinds of property expenses along with the base rent. On the other hand, the property owner receives a regular flow of income without any deduction or expenditure on the maintenance of the property. There are a couple of ways for investing in NNN properties. An investor can either directly invest in a NNN property or they can also use their 1031 exchange net proceeds and invest it in the NNN property. However, before you make the final call on the NNN investment, it’s important that you know this investment inside-out.
Different types of Net leases –
NNN stands for ‘Net, Net, Net’ and each ‘N’ represents one expense. The number of property expenses a tenant is liable to pay in a NNN lease depends on the lease type. In an absolute NNN lease, the tenant pays all ‘three-nets’. Similarly, a lease agreement that requires the tenant to pay any two property expenses is known as a double-net lease or NN lease. Though the two property expenses could be any, however, most NN leases include insurance fee and property taxes. Whereas, the investor or property owner still needs to pay the maintenance cost of the property. Likewise, a lease agreement that requires the tenant to pay one property expense is known as a single-net lease. Here, the property expense is mainly insurance fee or property taxes, whereas, the property owner is responsible for paying the other two expenses.
This is how you do a 1031 exchange with NNN investment…
Now that you’ve become aware of NNN investment, it’s time to understand how you can exchange your old investment property for a NNN property using a 1031 exchange. Technically, you can exchange any investment property for a NNN property using a 1031 exchange. The steps are –
- List your investment property for sale.
- Hire a QI and enter into a 1031 exchange agreement.
- Identify different NNN properties options within 45 days.
- Buy the same as your 1031 exchange replacement property within 180 days.
- Submit form 8824 to the IRS at the time of filing taxes along with the other required documents.
This way you can mix a NNN investment with a 1031 exchange. You can look for NNN tenant listings on our website.