What are Zero Cash Flow Properties?
One of the least understood types of real properties in the net lease market is a zero cash flow. Zero cash flow deals, also known as “Zeros,” are designed in a way that all the rent paid by the tenant goes to the lender. With all the cash flow going to the concerned lender, the owner receives no income until the loan fully matures. Perhaps this is why these are named as ‘zero cash flow properties’. When the loan is paid off in full, the property is then owned free-and-clear of any debt. These leases are often structured as NNN properties or bondable assets, leaving the landlord with no management or maintenance duties. In most cases, it is the tenants who hold investment grade ratings, reducing the risk of default.
Zeros are bond like long term leases lasting for 20 years or the above. And the loans in these transactions are fully-amortizing and have terms matching the length of the lease. However, zero cash flow must be backed by investment grade rated credit (AAA to BBB) so that debt requirement can met.
Who Can Invest & Why?
Zero Cash Flow Deals are a great option for someone looking for a 1031 Exchange or real estate planning. They satisfy both 1031 and 1033 exchange replacement property needs of the investors. The big benefit is that these properties come with highly-leveraged loans, which are not given to the general public. These types of investments are also popular options for estate planning, trusts and pensions who wish to enjoy the income generated after the debt is paid off. But should you invest in these properties? There are many benefits of investing these real estate properties. We discuss here some key benefits:
- Fully Amortizing Loan: Free and clear ownership upon the loan maturity and the flexibility to leave the asset unleveraged for greater cash flow or to refinance the same to extract the equity.
- Ideal Option for 1031 investors: Zeros allow the 1031 investors to satisfy their exchange requirement for a replacement property of their choice and thus earn huge profits.
- Estate Planning: Free and clear ownership of the real property upon loan maturity provides a source of long-term, unencumbered income.
- Buy net leased property: Zeros provide opportunity to buy an absolute net leased property for a minimal amount of equity, because most zeros are bought with equity as low as 10 to 15 percent of the total value
- Tax Benefits: Zero cash flow investment is a low cost way to obtain the tax benefits associated with ownership of real estate.
- Annual Depreciation: Offer the benefit of an annual source of depreciation and interest expense that can be written off against the income generated other qualifying investments. The plus point is that accelerated depreciation can be achieved through cost segregation analysis.
Why 1031 exchange buyers invest in zero cash flow deals?
Zeros are really an ideal option to satisfy both 1031 and 1033 exchange replacement property needs. The pay down re-advance facility available with these sorts of real estate products allows 1031 investors to satisfy their exchange requirements for replacement property then, post-closing enables them with no additional cost to take up to 85%-92% of their cash out of the property for various other purposes. The 1031 exchanges and zeros can also be used to defer recapture and capital gain taxes for foreclosure and the sale of highly leveraged properties. A property owner may have refinanced their properties to a higher loan to value, and then chooses to sell that property. As part of a 1031 tax deferred exchange, he needs to meet their debt level as part of their 1031 exchange. So, zero cash flow may be the answer.
Zero properties are a very lucrative option in net lease market for long term estate building where cash flow is not currently desired. Once the debt is fully amortized, these kinds of assets offer significant potential residual value and bigger cash flows. These are ideal options especially for three types of investors: first is a buyer who doesn’t need current income; second may be an investor with a tax liability from a foreclosure or deed in lieu and third is an investor with a highly leveraged 1031 exchange.
The Best Way to Successful Zero Cash Flow Transactions
Zero cash flow transactions are one of the most complex types of real estate deals and require a skillful broker who can find out the property as per investor’s need, who understands how to make the most of the tax consequences, and who can advise on long-term ownership of the property. At Triple Net Investment Group, we have assisted hundreds of clients in the purchase and sale of zeros and triple net leased properties. We deal in the 1031 exchange process, triple net, NNN properties, ground lease and sales lease back to name a few. We are the premiere source for all Zero Cash Flow Properties in Maryland, Washington DC, Virginia and all 50 states. We maintain a huge database of Zero Cash Flow Deals. Get in touch with for details!
Why should you consider our services?
- Specialized firm that exclusively offers Triple Net and 1031 Exchange services
- Have extreme and unbeatable knowledge, as well as experience of market scenario
- Staff of highly qualified professionals who closely work along clients in order to achieve desired, Triple Net Property Investment goal
- Relay of Corporate Tenant Credit Rating and most comprehensive retail news
- Wide database of buyers, investors, developer and brokers of different regions
- Tax-Deferred services that allow investors to reschedule the acknowledgment of Capital Gains Tax
- 1031 Exchange of Internal Revenue Code or IRC solutions for similar “like” properties
- Provide safe and secure platform to investors and owners for maximized Triple Net (NNN) Investments
For additional information regarding Tax-Deferred Exchanges and Triple Net Properties, please contact Triple Net Investment Group today.