Is That Lease Really NNN?
Individuals aiming to benefit from the safe harbor tax deferral of a 1031 exchange often prefer simplified ownership. They explore alternatives offering fixed payments without traditional responsibilities and costs. A popular choice is a “triple net” or “NNN” lease.
NNN-leased properties are favored for hassle-free ownership, relieving owners of maintenance, repairs, insurance, and real estate taxes. The tenant takes full responsibility for these obligations, providing a fixed “net” rent to the owner. This type of investment, particularly with a creditworthy tenant, offers a stable monthly income and the potential for revenue. Debt financing can be used to unlock equity while generating net operating income.
However, investors face challenges finding replacement properties within 45 days for a 1031 exchange due to the brief availability of NNN properties. These investments span different regions and commonly involve fast-food restaurants, banks, supermarkets, and tire shops.
Properties may be marketed as NNN lease properties, but a thorough review of lease documents is essential to confirm their status. Brokers may present multiple options, but accuracy is confirmed by reviewing lease documents. Despite a broker’s assurance, relying solely on them may pose risks; a legal review is advised.
Commercial leases advertised as NNN may have nuances, requiring careful examination. Special clauses, like disaster-related termination or rent reduction, could impact returns. Sellers may restrict lease reviews before signing, emphasizing the importance of legal advice and thorough contract examination.
The potential return on investment is crucial when considering NNN leases. Legal involvement from the start, despite initial costs, can prevent unforeseen expenses and obligations. It ensures accurate lease assessment, saving time and money in the long run. Engaging a lawyer early is vital for 1031 transactions, safeguarding eligibility and future net operating income.
Considering an NNN lease? Involving a lawyer early may seem an added cost, but it can prevent unexpected expenses and protect your investment. Competent legal counsel ensures accurate lease assessment, potentially saving you money in the long run. Early involvement can safeguard eligibility for a 1031 exchange and future net operating income.
