How to find and buy the best NNN ground lease investment.
Beware of advice like this. https://twitter.com/WORLDBESTLAW/status/659204367224967168
The issue is not the tweet but the actual article which states:
An attorney is such a “qualified intermediary”. A 1031 lawyer will prepare your 1031 documents and will facilitate the entire tax free transaction. It is very important that a professional such as a Lawyer facilitate the transaction because firstly if any mistake is made on the transaction or the paperwork with the transaction that needs to be filed with the IRS you will lose your tax free status. Also, the IRS regulations state that the money received from the sale of your current property must not be “touched” by you as the owner. It must go directly to the “qualified intermediary” who will then provide the funds for purchase of the new property. The mechanism of a 1031 exchange is quite complex however by utilizing a Lawyer to facilitate the transaction is a very efficient and cost effective way of performing the 1031 tax free exchange.
Let's be clear.
Attorney's can act as 1031 qualified intermediary.
Just don't use your attorney.
Treasury covers this in Reg. 1.1031(k)-1(k)(2).
Patrick Harrigan, President/COO and a Certified Exchange Specialist at Gain 1031 Exchange Company, LLC covers this really well here:
The Role of the Qualified Intermediary in a 1031 Exchange: Who Can Audition?
This is what he says:
The Treasury Regulations state that someone who has acted as the taxpayer’s employee, attorney, accountant, investment banker, real estate agent or broker within two years prior to the date of the closing of the sale of the relinquished property is the agent of the taxpayer and is disqualified to act as the intermediary for that taxpayer. This means a seller of property cannot have their attorney, real estate agent, etc. hold their proceeds if they intend to complete a 1031 exchange. Also disqualified are all attorneys in the same firm as the seller’s attorney and any real estate agent in the same brokerage as the seller’s real estate agent. The regulations then proceed to state two exceptions to the disqualification of an agent.
Exception 1 The regulations except out services that are routine financial, title insurance, escrow or trust services performed by a financial institution or title insurance company. Thus, those businesses do not become an agent of the taxpayer based on their routine activities and are allowed to act as intermediaries.
Exception 2 The regulations also except out services performed by the agent “for the taxpayer with respect to exchanges of property intended to qualify for nonrecognition of gain or loss under Section 1031.”
Any extra work to do this is sure to be less than that of an IRS challenge or a voided 1031 exchange.
We recently closed a small 1031 Exchange Replacement Property retail deal in Denver. As a way of saying thanks to our clients for the business we give them an option of making a donation on their behalf to a cause of their choice or doing a normal closing gift like Wine of the Month or dinner etc.
This client chose to support The Wounded Warrior Project.
What nearby deal is a good NNN real estate investment?
TMO plays a game of deal roulette and looks at a net leased NNN Dunkin Donuts property for sale with 9 years on a absolute triple net lease.
It is a nice NNN building in downtown Phoenix, an attractive piece of real estate. It features a great location on 16th St and Bethany Home Road NNN Dunkin Donut For Sale which is quite a busy intersection with high traffic volume and a number of other properties nearby.
However, it has pretty aggressive cap rate and high per square foot rate, but it looks like it could be a good deal.
The price is $2,375,000
Deal Roulette rating is A- to B+.
About the NNN Dunkin Donut For Sale Tenant:
Dunkin’ Brands Group, Inc., together with its subsidiaries, owns, operates, and franchises quick service restaurants under NNN Dunkin’ Donuts worldwide. The company operates in four segments: NNN Dunkin’ Donuts U.S., NNN Dunkin’ Donuts International, Baskin-Robbins International, and Baskin-Robbins U.S. Its restaurants offer hot and cold coffee, donuts, bagels, muffins and sandwiches, hard-serve ice cream, frozen beverages, baked goods, and other products. As of February 10, 2014, the company had approximately 11,000 Dunkin’ Donuts restaurants and 7,300 Baskin-Robbins restaurants, which are primarily owned and operated by approximately 2,000 franchisees, licensees, and joint venture partners. Dunkin’ Brands Group, Inc is publicly traded on the NASDAQ (DNKN) with a market capitalization in excess of $4.5 billion.
I’m in Northeast Boulder Colorado hunting for a 1031 exchange replacement property.
Within a few blocks of me, I had a choice of an Office Condo, Industrial Land, and an Office Building with potential redevelopment opportunity.
I chose the third option as it seems to be the best location and have the most upside along with cashflow:
- 3000 Pearl Street cor 30th Street (1031 Replacement Property Link)
- 13,000 SF Bldg
- Office Building with potential redevelopment opportunity
- $250 / foot
- 4 story building redevelopment possibility of 70,000 SF in total
1031 Exchange Replacement Property near the following:
- Barnes and Noble
- Chase bank
- Whole Foods
Overall, it’s a solid 1031 opportunity for those looking for 1031 exchange replacement property.
Just in.... 1031 NNN Property Want/Need.... This VIP client is the son-in-law of a long time Exclusive client. We have sold his father-in-law almost $30M worth of NNN properties in several states over the years. (Find out about the VIP and Exclusive Buyer programs here)
“Hey Thomas, I have 600k to 800k laying around that I need to get out of the bank and into an income property. Can finance if needed up to, let’s say, $1.5M. It is a partial 1031 exchange so would like to do something sooner than later. I like what you found my father-in-law for his 1031 exchanges and other investments. The triple net properties really appeal to me. Would like to get as high as cap rate as possible, can go anywhere in US. OK with some risk as I am still young and not afraid to get after it if needed. However, would not mind sitting back and just collecting a monthly check! Thanks, AG”
Today’s Deal Rundown
MAYBE - Denny’s in Ohio, $1.76M 6.25% cap rate. Pros: Advertised as absolute net with 13 years on term and strong store sales. Good demographics. Larger, almost 1 acre lot. Strong traffic counts of 31k. Cons: old building - 1970 Status: confirming who guarantees lease and last remodel and to what extent.
MAYBE - 7 year leaseback Boise NNN office $1.16M Pros: curb appeal, 7 year dress lease, 7% cap ask price, $200 psf, downtown location, high population growth, decent size western MSA, nice bite size deal Cons: small .28 acre lot, tenant strength Status: checking on who tenant is, needs more in depth location and market rent analysis
OF INTEREST - 15 year Grease Monkey in IL Pros: new 15 year absolute net lease, low price point of $620k, under $200 psf, corporate lease, 10% bumps, new branding and remodel. Cons: maybe franchisor/franchisee issues, single use building, lot size unknown (for now), unable to assess exact location
PASS - 20 year NNN Salad N Go PHX $1.28M @ 6.8% cap Pros: nice long term absolute net lease. Good location. 2% annual bumps after year three. Cons: small building size of 677 sf puts sale price psf at $1,890! Also puts rent at $128 psf annually! Yikes! Also only has operator guarantees.
PASS - Verizon NC - 9 years left on 11 year lease $1.74M 6.25% cap rate Pros: 9 years left with 600 unit operator. Advertised as NNN lease. New construction 2013. Good highway frontage near Wal-mart. Close to the Western Carolina University, having more than 10,000 students. Cons: high psf of $500. Negative population growth for area. Boonies of NC. Town of only 2,500 people (more in outskirts but still small). Away from main population base and highways especially for a 6.25% cap rate. Flat lease with only 5% bumps in options. $31 psf net rent which would be hard to replace.
PASS - Chase Bank Ohio $600k Pros: long time operation at this location, 26 years, under $200 psf, ok cap for national bank at 6.75%, low $13 psf rent, Chase remodeled in 2015 Cons: 1988 construction, some landlord responsibility, only 4 years left on lease, negative population growth
Off to a good start! However, amazing how many NNN deals look great on the surface only to find out they have major flaws.
Guest Post by Will Schnier, P.E., President of BIG RED DOG Engineering | Consulting
There are many reasons why somebody purchasing property would want to obtain the necessary survey products. For this discussion, at a minimum, I recommend that you should always obtain a current title survey, based on a title commitment less than 30-days old. A title survey will include information regarding property lines, location of improvements, easements, utilities and other conditions affecting the property.
I would also suggest that you consider obtaining a full tree, topography, and boundary survey in addition to the title survey if it’s appropriate for your purchase and project/investment intentions. The tree, topography, and boundary survey is also referred to as a design survey, and may be used by an engineer or architect to develop site development and building plans.
My top five reasons for you to obtain a survey are as follows:
1.) Know what you’re buying – the survey will identify the exact limits of the property boundary and improvements on the property.
Real estate can have title and boundary disputes (unfortunately it’s more common than you’d expect), which a title survey would help to uncover. Furthermore, relying upon tax district information on the lot or building size, or seller furnished documentation can be a recipe for expensive trouble without proper due diligence.
2.) Discover the presence and exact location of any easements, restrictions, or other encumbrances that may be imposed upon the property.
You may look out on a piece of property and see a green field, or a paved parking lot, and simply assume that that land is available for you to develop easily. How does that change if there are drainage or utility easements in that location? You may still be able to develop, yes, but your cost just went up a lot more than the cost of the survey.
Or suppose, you’re out in the county, not under the jurisdiction of a municipality that can impose zoning and land use restrictions. So you can build what you want right? What if a former owner of the property restricted its use, in an effort to promote a certain type of community? That 10-acre tract you intended to use for your commercial construction business may not be feasible if there is a deed restriction from 30 years ago limiting the use of the property to residential.
3.) If you’re spending significant money, it makes sense to an additional thousand or few thousand on a title and design survey.
Obtaining a title survey is an affordable way to obtain some more peace of mind with the transaction. Don’t be penny-wise and pound-foolish. You should do everything you can to protect the investment you’re making. A title survey could be as little as $1,000.
4.) The title and/or design survey can be used in the future to prepare drawings and exhibits, and to apply for building permits.
If you’re buying an office building for example, your prospective tenants may ask for a site plan showing the parking locations on the property – well now you have a survey you can supply them. Suppose again you want to apply for a minor building permit to expand the same office building - having a survey in hand will be a necessary step in that process.
5.) You can make the other guy pay!
All real estate contracts, residential or commercial, contain a clause specifically assigning the cost of the tile survey to either the buyer or the seller. Check the box next to the other guys name; this point is rarely an issue of significant contention during the negotiation process.
For more reading, I would encourage you to visit the BIG RED Blog. On you blog you will find very useful information on the land subdivision and site development permitting process, and highlights of specific BIG RED DOG projects, such as our new downtown Austin hotel at 416 Congress Avenue.
About Will Schnier, P.E.:
Will Schnier is the President of BIG RED DOG Engineering | Consulting. He has been responsible for the project management, engineering design, and regulatory permitting of numerous multifamily residential, retail, office, and industrial site development projects throughout central Texas. He can be reached by email at Will.Schnier(atsign)BIGREDDOG.com or by phone at (512) 669-5560.
About BIG RED DOG Engineering | Consulting:
BIG RED DOG is an Austin, Texas-based civil engineering firm specializing in land development engineering, permitting, and land use consulting. Our team of professional civil engineers and certified land planners has over 100-years of combined experience in the Austin and central Texas market. Our commercial project experience includes multi-family, hotel, office, industrial, retail, and single-family subdivision development projects throughout central Texas.