NNN 1031 Investments - Tractor Supply Company TSC Deals

Investing in TSC NNN Deals - Thomas takes a look at Tractor Supply Triple Net property investments for 1031 Exchanges.

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Will you outlive your money?

What is your greatest fear? Don’t run out of money and buy passive income properties.

The Pros and Cons of Triple Net Properties

In some ways, triple net properties are as much fixed-income investments as they are real estate vehicles.

Offering little to no management responsibility and long-term fixed incomes with the potential for gradual increases, they act like bonds.

However, underlying their financial structures, NNN properties are still real estate and carry the same eventual risks and challenges.

Here are some of the pros and cons of triple net lease properties:

Pro: Stable Income

Con: Limited Upside

Triple net leases are usually structured with a flat rent or with fixed increases. When you buy a $2,000,000 property at a 7.5 percent cap, you know that you can count on $150,000 per year for the life of the lease. Many triple-net properties also have rent increases of 1 to 2 percent per year built-in. They provide some growth, but don't necessarily keep up with inflation. However, this is no different from buying a corporate, Treasury or municipal bond with a fixed rate of return.

Pro: Long-Term 100% Occupancy

Con: Risk of 100% Vacancy

Most triple net properties come on the market with a lease of at least 10 years, with some having initial terms as long as 25 years. This gives you a long time during which you don't have to worry about partial or full vacancy. The drawback is that when the lease does expire, it's an all-or-nothing proposition. The same occurs in the event of a tenant default, although careful due diligence before purchase can reduce the risk of this occurring.

Pro: Attractive Cap Rates

Con: High Price Relative to Underlying Value

Single tenant properties typically trade at attractive cap rates that are hundreds of basis points above comparable non-real estate investments. They're also frequently priced lower than more traditional investment real estate alternatives on a cap rate basis. A large portion of their value comes from their income stream, though, meaning that they could lose value when vacant or as their remaining lease term decreases.

Pro: No Management

Con: CapEx at Rollover

True triple net properties are structured so that the owner has no responsibilities whatsoever during the lease period, while others transfer some capital expenditures to the owner. In either case, the ownership experience is very different from traditional real estate. However, when the lease rolls over, owners have to get involved in the re-leasing process and in any necessary capital expenditures to prepare for a new tenant.

What do you see as the benefits and risk?

Or Contact Thomas Morgan, CCIM Triple Net NNN Broker at 1-866-539-1777



NNN Properties and Your Future

NNN properties are a popular avenue for commercial real estate investment. These are typically single-tenant retail properties where the tenant is responsible for paying real estate taxes, providing their own property insurance and taking care of all property maintenance. Tenants take care of these expenses in addition to other monthly costs such as rent and utility payments. Part-time investors can find NNN properties to be an appealing real estate investment option. It offers a guaranteed stream of income from a real estate investment while also absolving the investor of carrying out many day-to-day management responsibilities for the property.

home depot NNN

Other advantages NNN properties offer are significant. An investor can lock in a long-term lease with a tenant who sets up shop in NNN properties. They can enjoy tax benefits that come from investing in commercial or residential real estate. Finally, successful NNN properties can act as a gateway for securing additional financing to use on other investments.

There are risks in leasing out triple net properties to the wrong tenant. An investor needs to know how to identify a good tenant versus a bad tenant. Assessing the worthiness of any tenant requires an investor to examine a company's business model and the state of its finances. Signing up a tenant in haste can result in disaster for any investor.

A company's credit rating offers an indicator of risk for default. While no investments outside of a federal bond offer a zero percent default rate, a tenant possessing an investment grade credit rating presents less of a risk for NNN properties.

Leasing NNN properties to a company essentially provides them capital. An investor needs to know if their tenant can guarantee long-term success with that capital. Investors should examine multiple criteria when choosing tenants for their triple net properties. They should examine a company's debt to equity ratio, operating margins, the number of stores it operates, the outlook for that industry and how the company is managed.

Investors in NNN properties should also take into account other factors. A successful investment can hinge on everything from location and building size to economic conditions for a particular industry. Triple net properties work best for a smart investor who buys in the right location and selects a low-risk tenant.

Knowing local market conditions is essential for any serious investor. It is important to pay attention to everything from the employment rate to median income in a community before selecting a property. A bad investment can leave an investor with an empty building that is essentially a money pit.

In the end, NNN properties are a great passive income investment that produce low risk yields of 7% or more with little investor oversight and involvement. Contact Thomas to find out more about NNN properties or to buy/sell a NNN property: 1-866-539-1777 or e-mail.

7 options: Green & Sustainable 1031 Exchange Investments

7 options: Green & Sustainable 1031 Exchange Investments

Many clients have been coming to us and saying “not only do I want a safe investment for my 1031 that is good for my money, I also want it to be a “good” investment for my kid’s kids and the planet we live on".

There seems to be a theme, rather than “be” the change you want to see in the world to “buy” the change you want to see in the world.

They ask what types of green or sustainable real estate is available for 1031 exchange.

Thomas explains more on this podcast episode and discusses seven types of green and sustainable investments suitable for 1031 exchange replacement properties.

How to Select the Best Triple Net Broker

Given that a net-leased investment typically costs millions of dollars, finding a good triple net broker is particularly important. Working with a good triple net broker will give you better access to inventory, better financing, and a better investment result.

Here are a few things to look for in your quest for a top-line triple net broker.

Fundamental Knowledge

Many of the triple net broker firms in the market lack a solid understanding of the fundamentals of an NNN investment. Look for a triple net broker who knows the difference between a double net, a triple net, and a "true" triple net lease. Your triple net broker should also understand the credit rating system, as this will help them, and you, measure the risk of a given tenant.

Access to Inventory

A strong NNN broker will have a large and diverse inventory consisting of a mixture of their own listings as well as properties offered by other triple net broker companies and off-market deals. This will let you choose from a number of different properties to find the right mix of lease terms, lease length, and tenant quality.

Access to Financing

A good triple net broker knows that the lender can make or break the deal. As such, you should look for a triple net broker who either has an in-house commercial mortgage broker or a strong relationship with an outside broker. Your triple net broker should also understand the many different financing options available, including bank financing, life insurance financing, conduit debt and the "CTL" credit tenant lease programs that provide long-term fixed rate debt for NNN assets.

Client-Focused Business

Your triple net broker should take some time to get to know you and your goals. They should then show you appropriate property. If, for instance, you express a desire to have long-term stable income and your triple net broker shows you properties with five or fewer years remaining on the lease, you may want to select someone else. Watch for a NNN broker who does not attempt to saddle you with more debt than you want. Although some debt carries a number of benefits, it also carries risk, and a good triple net broker will help you strike the right balance.

Experience

Your triple net broker should have a few deals under his or her belt. Although some of the most active triple net broker teams in the company focus on seller representation, there are a large number of good buyer representatives who have amassed a large resume of experience. Work with a triple net broker like that, and if they have a well-respected designation, like CCIM, that is an additional plus.

Opportunity Zone? - What is the difference between a 1031 Exchange and a Opportunity Zone Investment?

Opportunity Zone? - What is the difference between a 1031 Exchange and a Opportunity Zone Investment?

What is all the buzz about Opportunity Zones?

If you are a real estate investor or concerned about how much tax you pay then you have heard of Opportunity Zones.

Like a 1031 Exchange, the OZ legislation is meant to spur economic growth by providing capital gains tax relief.

I was fortunate to be a guest this week on Jimmy Atkinson's popular Opportunity Zones Podcast.

What is Triple Net NNN? - Triple net lease definition

What is Triple Net NNN? - Triple net lease definition

What is a Triple Net Lease? Here is a quick look at how NNN leases are defined.

How To Find The Best 1031 NNN Properties For Sale

How To Find The Best 1031 NNN Properties For Sale

Find out how to get the best 1031 NNN Properties on the national market delivered to you at no cost!

DEAL OF THE WEEK: NNN Dollar General Stores For Sale

Every week we review 100’s of NNN properties for sale for clients. Here is a rundown of the best NNN Dollar General stores for sale this week across the US.

Dollar General is the nation’s largest ‘smallbox’ discount retailer, operating over 14,761 stores in 44 states. They opened a company record of 1,315 new stores, executed 2,079 total real estate projects in 2017. They plan to open approximately 900 new stores, remodel 1,000 stores and relocate 100 stores in 2018. They have weathered 12 technical recessions. They have a solid future; with a focus on fresh produce, better shipping efficiencies and plans for private-labeled goods. This makes NNN Dollar General stores for sale a great 1031 exchange and low risk passive investment opportunity.

Dollar General released their 2018 second-quarter earnings.

· 28th consecutive year of positive same-store sales growth

· 3.7% increase in same store sales

· $23.5 billion in sales, $6.44 billion in revenue

· DG shares have added about 14.7% since the beginning of the year versus the S&P 500's gain of 9%

Top 3 NNN Dollar General stores for sale this week:

NNN Dollar General Store For Sale CA

California

$2,310,000

5.85% cap

Absolute NNN

New 2018 construction

14.9 years remaining

7,489 sq ft

1.05 acres

Single Tenant

Corporate Guaranty

Desirable California Geography – South of Fresno

32.000+ population within 5 miles

$67,000 household income within 5 miles

8000+ combines traffic counts

I like this new construction with long term lease, and zero landlord responsibilities in a larger market area for DG. Population and traffic counts are strong, and located near Naval Air Station.

NNN Dollar General Store For Sale FL

Florida

$1,854,556

6.10% cap

Absolute NNN

New 2018 construction

15 years remaining

9,100 sq ft

1.40 acres

Single Tenant

Corporate Guaranty

Tax free state

Avg income exceeds $50,000

Avg Daily Traffic is over 12,000

This location is in a great traffic area, good cap rate in a no-tax state.

NNN Dollar General Store For Sale GA

Georgia

$1,739,905

6.35% cap

Absolute NNN

New upgraded brick construction (on 3 sides)

15 years remaining

9,100 sq ft

2.5 acres

Single Tenant

Corporate Guaranty

Avg income within 1 mile $64,000

17,000+ residents within 3 miles

Universally applicable building

I really like the upgraded brick construction, lot size and location of this DG. Good cap rate and strong population as well.

This post was written by a Broker Associate.

NNN 1031 Podcast - Update

Thanks to all the listeners of the 1031 Exchange Passive Income Series on itunes and other podcast sources.

And thanks for the calls and emails from our listeners.  Glad we can answer your 1031 exchange and triple net questions.

Here is the new page with all the podcast show links as well as links to itunes and stitcher and youtube etc:

www.1031navigator.com/podcast-nnn-1031

1031 - To Do or Not to Do? - That is the question

This one was a lot of fun.  I like to dork out on the numbers.

I get asked all the time: "Should I do a 1031 exchange?"

Again the answer: Depends.

Depends on what you bought the property for and what you are selling for and how long you have owned it.  Depends on your overall financial situation and what your needs and investment goals are.

Typically, if you have not owned a property that long, say 2-4 years, it makes sense to pay the tax and reset you cost/tax basis.  That is unless your gain is huge, then you probably want to do a 1031. 

OR if you have owned a property a long time or inherited it and the basis is very low or zero then you should do a 1031.  This is situation that 90% of my clients fall into.

Below are some quick and dirty numbers from the episode "NNN 1031 Secret #2" of the 1031 Exchange Passive Income and Investment Series on iTunes and every other podcast platform and YouTube.  The audio has more info and details than this post and I dive into this topic in depth so make sure to download it for your next drive, walk or exercise or for when you are doing the dishes.

A lot of times people who are new to a 1031 exchange get cold feet, have misgivings or get overwhelmed with the process and say "I'm just going to pay the tax."

I say "It's your money. You should definitely do what you want and need to. But consider this...."

Basically, in my humble opinion, the 1031 exchange is the greatest wealth building tool known to mankind besides compound interest

For the purposes of this example I am going to use $1,000,000 as the total sale proceeds. If you have $5MM or $10MM sale proceeds, the cash flow and capital accumulation are of course magnified 5X or 10X.

Listen to the show for details but most people considering a 1031 have zero or very low tax basis in the property they are selling. The majority of my clients have pretty much the entire sale price as the capital gain. On a $1MM sale, with zero basis the capital gain is $1MM.  I have one client right now with a $15MM gain and have worked on one with a $40MM gain. How does paying $10MM to $12MM in tax sound?  Ouch!

Fed capital gains tax is 23.8% right now with the ACA tax included and most states also have a capital gains tax.  The IRS will also tax you on the depreciation you took over the life of the investment which is called a recapture tax and that is 25%.  In effect, the capital gains tax is much higher than the stated rate dependent on how much income you sheltered with depreciation over the life of the investment.  A good rule of thumb is 30% of the gain goes to Uncle Sam.

In the examples below, if you have a $1MM gain/sale, $300k goes to taxes and you have $700k left over.  Yes a 30% reduction in investment capital. 

BUT I look at inversely, if you do a 1031, the government allows you to keep and use (for the time being through deferral) the $300k.  This is about 43% more investment capital (30% tax of $1M is 300k but 300k more than 700k is 43% MORE.)

This is the kicker.  If you can invest $700k or invest $1MM and you get the benefits of the investment such as cashflow, depreciation and appreciation, which would you choose?

Most of us would rather get the benefit of the $300k now and in the future rather than cut a check to the IRS now.  Once you write the check, $300k of your money is gone.  POOF!

This is what the numbers look like.  I ran them two ways. One based on a triple net investment for cash flow.  And two for an IRR deal like development or value add or sell in the future type deal.

Effects of 1031 on Cashflow

For a NNN investment, let's say you get 6.5% cap rate or annual cash flow.  This is all unleveraged of course. 

1031 NNN CF.png

At end of the day you have 43% more money invested and therefor 43% more benefit. 

Pay tax now of $300k or get $20k more per year in cash flow on the $300k. Over 5 years this is $100k more.  Over 10 years this is $200k more.

Would you rather have $65,000 per year or $45,500 per year?

Or another way to see it:

Lose $300k now (send a check to IRS) and lose $20,000 per year of additional income for the rest of your life!

Effects of 1031 on Capital Growth

The other way I looked at was from an IRR perspective or overall rate of return. (IRR is Internal Rate of Return or annual overall yield)  Let's say you have an opportunity to invest in a NNN development or apartment building with upside or a value-add investment deal.  The IRR takes into account all cashflows including purchase and sale and costs etc.

15% is a reasonable IRR. You can get that on strip centers and apartment buildings and rehab projects.  Most developers are targeting 20-30% IRR's so 15% is reasonable.

1031 IRR Effect.png

Hmmmmm.... 1031 or no?

Over 5 years grow your $1MM to over $2M?  Or pay the tax and leave $603k on the table?

Over 10 years grow your $1MM to over $4MM? Or pay the tax and leave $1,213,667 on the table?

Easy decision for most of us.

Pay the Tax and Invest Outside of the 1031?

Earlier this year a client was wavering and going back and forth on a 1031 exchange.  They had $3.6MM from the exchange.  They thought they could pay the tax in order to get higher yields outside the 1031. 

Sure there are more investments outside of the 1031 like stocks and private equity etc.. However, when compared to NNN 1031 Investments those investments are going to be much more risky. This client's goal was secure, passive income and capital preservation. Paying the tax and trying to invest in these other types of investments were totally contrary to these goals.

Let's say they could get 6.5% cap rate/yield on the NNN 1031. That is $234k per year of income.

They were looking at over $1M of taxes. Poof!

At the end of the day, after paying tax and reinvesting they would have to get a 9.3% cap rate or IRR to get what they would get on the 1031 NNN property.

Not sure about you, but I don't know of too many investments, if any, paying 10% per year that are hands off, safe and protect your capital. Maybe Madoff can help?

Here are the numbers:

yield outside of NNN 1031.png

Another option here which many of my clients have is to do the 1031 all cash then refi.  The IRS does not tax the refi proceeds.  In this case the client could have easily gotten a 50% loan and pulled out $1.8MM.  Then the tenant pays back the $1.8MM loan and the $1.8M in proceeds could be invested in something at a higher yield. 

To me, this is the ultimate benefit. On the $1MM example, a person completes a $1MM 1031 at 6.5% then pulls out $600k (60%) tax free and reinvests in whatever they want.  This is 900k of money that will accrue to your benefit.  ($300k tax deferral and $600k loan reinvested).

Now, that is wealth building! 

What do you think Warren? (Buffet of course)

Let me know your thoughts and if you think a 1031 exchange is right for you!

Text me at 970-618-4086 or get a free 1031 exchange and real estate investment consultation here.

Cheers, Thomas

Is the Lease really NNN? - 1031 Exchange & Passive Income Investment Series

Today we look at if the Lease is really triple net?  Is it absolute net, triple net or double net?

Get the Whole Podcast on Itunes here.

In NNN investing, the lease is one of the most important things. The point of investing in NNN properties is to have a hands off investment.

When buying NNN properties make sure to read the lease to see if it is really true NNN or not.

Many triple net brokers and NNN sellers will advertise the lease as "net leased" or "ease of management" or "minimal landlord responsibilities" . Often times the lease will have more landlord responsibilities that advertised. Thomas Morgan, CCIM of 1031navigator.com talks about absolute net leases, NNN leases, and NN leases.

Beware of opening escrow without having read the lease to see if it is triple net or not. This will save you time and money on your 1031 exchange NNN property purchase.

 

 

Best and Worst 1031 NNN Investments - Deal of the Week

This post was written by our deal analyst Daniel Greenberg.

Daniel has looked at hundreds of 1031 NNN deals over the last few weeks and has some good insights into the evaluation of these two deals as 1031 NNN investments.

Brand New Advance Auto Parts | Chicago MSA | 14 - Year Lease

On the face of it this seems like a great 1031 NNN investment.  It’s a brand new Advance Auto Parts in Aurora, IL.  The location is on the corner of two heavily trafficked neighborhood streets and less than a mile from I-88 (76,000 VPD).  The site is an out parcel to a Wal-Mart, part of the Chicago MSA, and has 1-Mile Median Household Income of $92,196.  The lease is for 14 years at $18.25/SF/YR and is backed by a corporate tenant with investment grade credit. 

The property looks great, the location is good, and the tenant is strong, yet there are a few things red flags about this deal.  The lease is only NN, which means that the landlord is responsible for the structure.  The lease also states that if during the renewal options the tenant replaces the roof or HVAC, the landlord shall reimburse the tenant for the unamortized portion of tenant’s cost of such replacement at the expiration of the term. This means the landlord needs to be aware of potential issues with the buildings and can’t just sit back and collect rent.  The other issue is that the lease doesn’t include any rent bumps until the renewal options, which aren’t until 2031.  2031 is many years in the future and rent bumps are needed to hedge against inflation and raising cap rates.  A 14-year lease with no rent bumps gives little future financial protection to the owner. 

Ultimately, any deal is a good deal at the right price; this deal is being offered at a 5.9% cap rate, which does offer investors somewhat of a discount.  It all depends on what potential buyers are looking for.   If the buyer wants an absolutely passive deal and hedge against inflation, then this deal is not for them.

 Walgreens | Colorado Springs, CO | 10+ Yr Absolute NNN Lease

This is a strong NNN 1031 deal located in Colorado Springs, CO.  The property has good site visibility (intersection has 53,000 VPD) and is located in a strong retail corridor with tenants like Wal-Mart (across the street), Lowe's Home Improvement, Guitar Center, PetSmart, etc.  More than 252,881 people reside within a 5-mile radius of the site.  The lease has 10+ years remaining and is absolute NNN, meaning the landlord has zero responsibilities. Walgreens is the nation's largest drugstore chain, is an investment grade tenant (S&P: BBB) and ranks #19 in the Fortune 500 (2016).  The property is listed at a 6% cap ($492.98/SF), which offers potential buyers a suitable long-term return for a passive NNN investment.

For deal analysis like this, call us at 1-866-539-1777 or send an email here.

Recent NNN 1031 Closings

We are pleased to announce the following recent closings:

NNN Florida Walgreens: $8,662,371 – Sourced off-market deal through developer and broker network. Record setting cap rate of 4.85%. All cash transaction with 1031 exchange buyer. More Walgreens NNN For Sale

Triple Net CVS: $6,450,000 – Low leverage 1031 exchange buyer. 24 years left on absolute net lease – 5.32% cap rate. Solid midwest location. More CVS NNN For Sale

Net Leased Dollar General: ~ $1MM – high cap rate deal 8%+ with 7+ years on NN lease. Growing SE US location. All cash 1031 exchange buyer. More Dollar General NNN For Sale

For more details or help on your NNN 1031 exchange, give us a ring at 1-866-539-1777.

5 Things You Should Ask Your 1031 Triple Net NNN Broker

Here is the most recent Q&A in our NNN Property Video Series.

Thomas discusses 5 things you should ask your 1031 Triple Net Broker.  The video is below or can be found on youtube or the audio on itunes.

5 questions ask your 1031 Exchange NNN Triple Net Property Broker

  1. How long have you been doing 1031 and NNN Triple Net brokerage? What kind of deals have you worked on in the past? What certification do you have; CCIM, SIOR or are you a member of other local or national organization?
  2. What kind of deals are you working on now, will do in the future or have done in the past? Do you do apartment buildings, industrial buildings, single family houses, Walgreens NNN? You want to ensure you have a specialist working with you on your 1031 exchange and Triple Net property.
  3. How do you get paid? The seller? Does the listing broker or the buyer pay the fees?
  4. Will I sign exclusively with you as my only NNN broker or non-exclusively?
  5. Where do the properties come from? Will you tap into your developer and listing broker networks and relationships forged over the years to get the best NNN properties? Or will you send me off market or pre market NNN properties and I'll have a chance at first purchase?

1031 Navigator helps investors nationwide find the best 1031 Exchange replacement properties in the shortest amount of time.  

Our focused expertise, experience and daily triple net market presence enables clients to complete their 1031 Exchanges with peace of mind and certainty.  1031 Navigator has been involved with over half a billion dollars of 1031 Exchange NNN Properties in over 30 states.

1031 Navigator is a service of Andrus & Morgan Co., a national commercial and investment real estate brokerage specializing in passive income investments.

For a free, no-obligation 1031 Exchange NNN Property Strategy session for your 1031 Exchange visit:

http://www.1031navigator.com

 

Is the Lease really a NNN Lease? - Triple Net Properties Q&A

Today we look at if the Lease is really triple net?  Is it absolute net, triple net or double net?

In NNN investing, the lease is one of the most important things. The point of investing in NNN properties is to have a "hands off" investment.

When buying NNN properties make sure to read the lease to see if it is really true NNN or not.

Many triple net brokers and NNN sellers will advertise the lease as "net leased" or "ease of management" or "minimal landlord responsibilities" . Often times the lease will have more landlord responsibilities that advertised.

In this Video and Audio Q&A Thomas Morgan, CCIM of 1031navigator.com talks about absolute net leases, NNN leases, and NN leases.

Beware of opening escrow without having read the lease to see if it is triple net or not. This will save you time and money on your 1031 exchange NNN property purchase.

Video

Audio Version

Subscribe in iTunes or Stitcher

1031 Navigator helps investors nationwide find the best 1031 Exchange replacement properties in the shortest amount of time.

Our focused expertise, experience and daily triple net market presence enables clients to complete their 1031 Exchanges with peace of mind and certainty. 1031 Navigator has been involved with over half a billion dollars of 1031 Exchange NNN Properties in over 30 states.

1031 Navigator is a service of Andrus & Morgan Co., a national commercial and investment real estate brokerage specializing in passive income investments.

For a free, no-obligation 1031 Exchange NNN Property Strategy session for your 1031 Exchange visit:

http://www.1031navigator.com

Multiple NNN deals from multiple NNN brokers

This is a dog eat dog business.  

May the best broker win. 

It could come down to who is faster, smarter, more charismatic, more pushy, timing or even luck. 

None of that should really matter though.  

Yes, you should know like and trust the person you helps you with your NNN property. But really it should come down to which is the best NNN property. And which one meets your personal goals.  

Let's change may the best "broker" win to may the best "deal" win. 

What NNN deal matches your criteria better?

Let's compare traffic counts, demographics, retail sales, retail supply, market rents, tenant rent, market comps, land prices, cap rate, increases, likelihood of renewal or re-leasing, financing options, financing costs, "headache" factor, etc etc etc.   

Thats what we do for our NNN clients.  

80-90% of the deals out there are crap. We send our clients those deals that are the best long term investments for them and their families. 

May the best deal win.  

And the NNN broker who procures that NNN property win and earn the business.