Building wealth with NNN assets

The primary secret of NNN properties in wealth-building is giving investors freedom and time to strategize and execute on core asset building activities rather than take on the role of a stressed-out, active, asset manager. Triple Net Leases require the least amount of hands-on, management purely because the nature of the lease puts the entire onus for repairs, maintenance, operations and taxes on to the NNN tenant. Triple net lease investors do not cut grass, run business, take calls for blocked toilets, pay property expenses, repair the property etc. Investors can literally sign the NNN lease and then sit back.

High net worth families and institutional investors have long known and used NNN lease properties for “core” assets in their portfolios. In other words, triple net lease assets generate a low risk, reliable, bond-like, compounded return essentially in the form of rent payments with built-in, inflation-hedging, rent escalations over long lease terms of 15 years plus. Since real estate forms the bedrock for these leases, the fundamental virtues of real estate assets accrue to the owners, i.e. compounding returns, inflation-hedged returns, tangible wealth and “balloon” appreciation.

When accounting for its varied tax benefits, NNN property ownership offers an easy conversion of a 5.00% IRR to a substantial 7–11% IRR, providing another wealth-building booster. One solid tax benefit is the use of the 1031 exchange. When investors sell an actively-managed investment property to buy a NNN property, it is possible to completely or partially defer capital gains tax on the profits from the sale. Not only can you defer the capital gains tax, you may also defer the depreciation recapture tax, which can provide an additional savings. And if savvy investors use LLCs formed in states with no or low-income taxes such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee, an additional accelerator can be added to the investor’s IRR. Cost segregation is yet another tax tool that takes advantage of differing depreciation rates and timelines of components of NNN assets, so that a greater value of the asset gets expensed earlier in time – giving yet another fillip to an investor’s rate of return from NNN assets.

By choosing an appropriate mix of tenants, an investor’s NNN portfolio is better-diversified, providing returns at lower levels of risk. NNN properties with strong essential-goods tenants such as Dollar General, Walgreens, DaVita, 7-Eleven, KFC, and Firestone, among other major brands, remain the safest and steady investments to own. Yet another wealth and return booster is the ability to diversify by geography. NNN properties do not need the investor’s physical presence, and thus, it is easy to own a property in any state, no matter where the investor resides!

The use of debt finance in NNN leases is another big contributor to wealth generation. NNN leases are easy to debt-finance because of all the elements described above. Because of the ease of use of debt, returns get exaggerated further since the use of debt reduces tax impact on income. Additionally once NNN property generates greater value over time (i.e. higher rents, higher property appraised value etc), it can be re-financed to release incremental cash returns to the investor.

Call 202-361-3050. Robert Gamzeh and the Triple Net Investments Group can show you how to energize your commercial real estate portfolio and create more wealth quickly using NNN properties.

Categories: Articles