What is NNN Real Estate?


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A quick tutorial on the ins and outs of triple net lease real estate investments.

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What is NNN Real Estate?

  1. 1. A quick tutorial on the ins and outs of triple net lease real estate investments.<br />What is “NNN” Real Estate?<br />
  2. 2. What is a Triple-Net (NNN) Leased Property?<br /><ul><li>A Triple-Net Leased Property is a real estate asset where the tenant is responsible for all operating expenses and management duties of the property
  3. 3. Landlord collects rent:
  4. 4. NET of all Maintenance expense,
  5. 5. NET of all Insurance expense, and
  6. 6. NET of all Taxes</li></li></ul><li>What Makes an NNN Investment so Appealing?<br /><ul><li>Income Generation (like a bond)
  7. 7. Capital Appreciation (like equity)
  8. 8. Inflation Protection (a hard asset)
  9. 9. Positive cash flow generated from Day 1
  10. 10. Limited property development risk
  11. 11. Tax Efficiency (deferred cash taxes from an IRS §1031 Exchange)</li></li></ul><li>What makes a NNN investment “High Quality”?<br />3 Very Important Criteria:<br /><ul><li>LOCATION: Strong metro or suburban market
  12. 12. Tenant: Strong credit
  13. 13. Asset: Strong facility design and build</li></li></ul><li>What Industries Utilize the NNN Lease Structure?<br />Just about every industry uses NNN in some way:<br />
  14. 14. What is a Sale Leaseback?<br />A sale leaseback is a real estate transaction in which a business operator sells their property to an investor, but then remains in the property as a long term triple-net (NNN) tenant of the new owner. The business operator benefits from this transactions by obtaining capital from a previously illiquid asset which they can use to expand their business, pay down debt or whatever they like. The investor benefits from this transactions by acquiring a property that will produce monthly cash flow and a positive return on investment. A true WIN-WIN!<br />
  15. 15. What is a Build-To-Suit?<br />A Build-To-Suit (BTS) is a real estate transaction where a property owner (a.k.a. developer or landlord) will build a structure on their property specifically for the needs of a pre-designated tenant who has engaged in a long term lease with the landlord. In many cases, this long term lease will be a triple-net (NNN) lease. The benefits of a BTS to the tenant are that they get to open another unit in which to operate their business but with reduced development risk as most of that is taken by the landlord/developer. The benefits of a BTS to the landlord/developer is that adding a structure with a high quality tenant in a long term NNN lease will greatly enhance the value of the raw property. In most cases, the landlord/developer can sell this property to another investor afterwards for a significant return. <br />
  16. 16. What is an IRS §1031 Exchange?<br />A §1031 Exchange (also referred to as a Like-Kind Exchange or Tax-Deferred Exchange) is a transaction (typically used in real estate) where you sell one property and then “replace” it with another of equal or greater value and in the process “defer” the capital gain incurred on the sale of the asset. If you own a real estate asset which has appreciated significantly, this is a great tool for you to use to reinvest that capital into another asset while avoiding a burdensome capital gains tax. The process of completing a 1031 exchange is simple to understand but a little difficult to execute. Once you have sold your property the proceeds from the sale have to be placed into escrow with a Qualified Intermediary (QI). A QI is typically an attorney or CPA who is experienced in 1031 exchanges. Now the clock starts ticking! Within 45 days of closing on the sale of your “relinquished” property, you must identify up to 3 replacement properties that you will invest the proceeds into. This is critical because if you have not properly identified 3 properties within this time frame the opportunity to exchange is gone. After you have identified the potential property (or properties) you have 180 days (from the sale of the relinquished property) to close on the acquisition of the replacement property. If you do not do so within the specific time frame a capital gains tax will be incurred. <br />How does a §1031 Exchange relate to a triple-net (NNN) real estate investment? Many real estate owners and operators will sell management intensive properties which they have owned and operated for many years and will replace them with NNN properties so that they can continue to enjoy the benefits and returns associated with commercial real estate ownership but without the headaches of management. Example: One investor sold a 44-unit apartment building in Suburban Boston and 1031 exchanged into a NNN commercial distribution center in Florida with a high profile tenant. Now he just collects rent with no landlord responsibilities. <br />
  17. 17. For more information about NNN Investments please contact:<br />Lenrock Real Estate Partners<br />www.lenrock.com<br />1-646-845-8570<br />Thank you,<br />
  18. 18. Disclaimer<br />This presentation is for information purposes only. This is NOT intended as investment advice or as an offer or solicitation to purchase or sell placement in any security. It may NOT be reproduced or distributed, in whole or in part, without the written consent of Lenrock Real Estate Partners and is subject to customary undertakings of confidentiality. The presentation is NOT intended to provide a sufficient basis on which to make an investment decision. Investments in real estate, as in anything else, are risky! Viewers are encouraged to seek legal and professional advice before making any real estate investment. <br />