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FGG 1031 - Buying Triple Net (NNN) Real estates in a DST Structure
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Triple net leased properties (NNN) are those where the leaseholder is responsible for paying for all taxes, insurance, maintenance for the real estate (the three nets). Triple net properties continue being one of the most popular asset classes for real estate investors who are pursuing reasonably low administration duties and secure cash flow. We would like to discuss some distinct opinions that investors have discussed with us that have caused many to look at other asset classes when thinking about a DST ownership building for triple net real estates.
Placement of Loan Term with Lease Term - Most DSTs are financed with loans that are due in 10 years. Adjusting Rents to Comply with Transforming Market Conditions-- Leases in most NNN properties often restrict annual rent boosts to amounts that are mediated at the time that the lease was executed. Maintenance Monitoring-- While triple net leases require tenants to keep their rented real estates, owners nevertheless need to remain watchful and frequently inspect properties to make sure that the lease obligations are being measured up to.
REIT Exit Strategies-- Some DST sponsors provide possibilities for investors of NNN properties to convert their DST ownership into shares of a REIT later on. A REIT or Real Estate Investment Trust is another form of group ownership that many investors find tempting. This choice may be particularly appealing if the REIT ownership shares are publicly traded and if the conversion from a DST to a REIT provides a chance for earlier liquidity and possibly added upside due to favorable potential market conditions. However, 1031 exchanges should understand that the conversion of DST ownership interests into REIT shares results in the decline of 1031 Exchange choices going forward. That is, once the conversion to REIT shares is finished, the built up increase on the potential sale of those shares no longer be postponed via a 1031 Exchange-- and tax effects are likely to result upon potential sale.
We recommend all investors who are considering NNN leased real estates to ask for our expertise to analyze pros and cons before deciding their investments.
Article citations: nnn real estates, triple net lease properties, 1031 real estate, nnn leased real estates, exchanging real estate, triple net basis,1031 exchange reit, 1031 reits
Triple net leased properties (NNN) are those where the lessee is liable for paying for all taxes, insurance, upkeep for the property (the three nets). Triple net real estates with less than 10 years staying on their lease term can experience a loss of value due to increased perceived buyer risks that the tenant( s) may not renew or that new financing will be more expensive and tough to acquire. Adjusting Rents to Comply with Changing Market Conditions-- Leases in most NNN properties often limit annual rent increases to amounts that are bargained at the time that the lease was executed. Upkeep Monitoring-- While triple net leases require lessees to keep their rented properties, owners nevertheless need to stay aware and regularly inspect real estates to make sure that the lease obligations are being suited.
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