Carnegie Wealth Management Putting Together the Perfect Off-Market NNN 1031 Exchange Solution
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Still Searching for the Perfect Off-Market,
NNN 1031 Replacement Property?
"I've spent three decades finding my clients off-market real estate investments to match their investment criteria, threshold of risk, and investor temperment. My clients want to see Off-Market, Triple Net Leased properties, that offer them the CAP rates they require, the credit tenant that they need, and the length of lease that meets their criteria. If you're frustrated and are still looking for Off Market, Dollar, Drug, Auto Supply, Retail, Fast Food, Convenience stores, Banks along with other National & Regional Corporate Tenants, you need to contact me today! I've Got Your Perfect 1031 Solution."
Steve Arnold
President
(239) 898-8918 direct
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Congratulations on your upcoming 1031 Real Estate Exchange! If you're like most people venturing into the World of Section 1031 Exchanges, you are probably overwhelmed and even a bit confused by the sheer number of real estate options available to you. And if the huge variety of replacement property options isn't challenging enough, there's the whole 45 Day time constraint on top of it all. This business of 1031 Exchanges is NOT for the faint of heart!
After you've searched LoopNet until your fingers have blisters and spoken to more real estate brokers than you cared to, you might want to look into the benefits of owning off-market Triple Net Lease Tenant 1031 transaction. The advantage of a Triple Net Lease (NNN) is that the tenant is responsible for not only the operation of the property but also all the ongoing expenses as well. This means that you as Landlord have no responsibilities other than getting your rent check deposited to your bank each month. Credit Worthiness of the Tenant. This is the big one. The Stronger the Credit Worthiness of the Tenant, the lower the current yield on the lease. When you think about it, this just makes sense. A stronger credit tenant means that the likelihood of a default on the lease is reduced. An A+ rated company on a lease is less likely to run into "financial trouble" and default on their lease than would be the case with a lease from a less than credit worthy tenant. Going back to our Walgreens example, Walgreens has their $14 Billion in net worth standing behind their lease obligations where as "Two Brothers' Pizza Joint" may only have a leased oven as their main asset. The higher the Credit Worthiness the less risk of default. The higher the credit worthiness the lower the current yield on the lease. In other words, a Walgreens within A+ Rating may offer a 7% return on their lease, whereas "Two Brothers' Pizza Joint", basically unrated from a credit worthiness standpoint, may offer a 12% current return on their lease. A Dollar General with a BB S&P Rating may yield 8.5%. The higher the creditworthiness the lower the current yield. Make sense?
Before you say to yourself that this sounds "too good to be true" the obvious risk in any NNN transaction is in the financial strength of the tenant. Let me throw out some examples: If you were to own a Walgreens store, the full faith and credit of Walgreens Corporation (S&P Rated A+) stands behind not only their rent obligation to you as owner, but also behind all expenses incurred at the property. That means that regardless of the sales from your particular store Walgreens Corp must make the rent payments to you. It also means that Walgreens is responsible for insurance, taxes, maintenance, payroll, upkeep etc on your store.
That's the beauty of a Triple Net Lease in that you as Landlord have Zero Responsibilities. But having Zero Landlord Responsibilities comes with a price. The price is that of Credit vs Yield.
Credit vs Yield. In any Triple Net Lease there are a limited number of "moving parts". The Variables in a NNN Lease are:
Length of Term Lease. This is another element that "just makes sense" when you think about it. The shorter the period of time left on the lease, the higher the yield. Why? Because the time left for the tenant to be financially responsible for his lease is running out. A 25 year lease with Walgreens is more valuable than a 5 year lease, simple because the tenant's obligation is longer. Shorter Lease equates to higher risk, and therefore a higher current yield.
Rent Increases. Increases in rent payments are a good thing. A lease that offers periodic increases in rent over the term of the lease is obviously more valuable than a lease that is constant or "flat" over the term of the lease. Increases allow the owner to "keep up with inflation" moving forward.
Summary. The business of Triple Net Leased Real Estate all comes down to risk and reward. The The higher the credit rating of the tenant the lower the current return. You have to decide at what credit rating are you going to be able to accept and still sleep at night. Not everyone needs to own an A+ Rated Tenant. And not everyone can accept owning an unrated franchisee ("Two Brothers' Pizza Joint"). In the world of NNN properties, the basic fundamental criteria for ownership is more "mathematical" (credit rating, length of term lease, current yield" than the old adage of location, location, location. In a true NNN property the credit strength of the parent corporation on the lease is more important than the location because regardless of what happens at that particular location, the parent company is "on the hook".
If you've found yourself up to your neck in the "rough & tumble" 1031 Exchange business, you'll be relieved to know that there is a light at the end of your tunnel. Let us help put all the pieces together for your "Perfect 1031 Solution".
If you have an interest in learning more about how a Leveraged 1031 Exchange transaction might fit your situation contact me directly and check out our new web-site at:www.leveraged1031solutions.com
Thank you for your interest and we look forward to working with you.
Steven A. Arnold
President
Carnegie Wealth Management
www.carnegiewealthmanagement.com
