ExchangeINTO MANAGEMENT-FREE AND HEADACHE-FREE OWNERSHIP

Are your real estate investments giving you a management headache? Are you tired of tenant complaints and property destruction? 

As a real estate investor, are your goals security, predictable partially tax-sheltered income with an inflation hedge, if so, then commercial triple-net lease property is an excellent vehicle to create wealth through real estate.

This real estate investment product requires little or no management, has little risk, and produces monthly income from lease payments. The lease agreement can also provide the opportunity for rent increases as a hedge against inflation.

What Is A Triple-Net Lease Property?

Over the past several years, owning commercial property under a triple-net lease arrangement has emerged as a highly popular and effective strategy in real estate investing.

A triple-net lease property is an investment where one owns real estate (land and building). Leases to a tenant for a 15-25 year term, who agrees to occupy the property, operate their business on the premises, pay rent and all the property operating expenses (taxes, maintenance, and insurance) with the opportunity for rent to increase over time as a hedge against inflation.

How Does This Differ From Owning Other Investment Property?

Unlike owning duplexes, apartments, land, or an office building, owning a commercial property under a triple-net lease agreement to a business tenant is a passive investment (management and headache-free). In most real estate investments such as mini-storage facilities, apartments, and office buildings you as the property owner must perform property management duties, and pay operating expenses. You rent the property, collect the rents, refurbish the premises,pay the property taxes, insurance premiums, maintenance, accounting, legal, and other operating expenses. Whereas, under a triple-net lease arrangement the tenant agrees to perform all these functions for you as the owner of the property in return for a long-term lease agreement.

With a passive real estate investment, such as owning commercial property under a triple-net lease arrangement, the tenant operates its business in the location. As the owner of the property, you do not have to contend with monthly renters and operating expenses. This type of real estate investment is passive, similar to owning stock in Sears, you receive the dividends or, in this case, lease payments. Further, these types of commercial tenants are positive business renters. Unlike apartment renters who tend to abuse the property and then move out leaving the owner to refurbish and find new renters, commercial tenants have a vested business interest in seeing that a location is well maintained and attractive to customers. As a result, there is an economic incentive to enhance the owner's property over time.

Some Examples Of Commercial Triple-Net Leased Property

If you drive through the business district of any city or town you will see commercial triple-net lease properties: for example all the major restaurants such as; Burger King, Taco Bell, Kentucky Fried Chicken, Pizza Hut, the automotive after-market such as; Goodyear Tire, Pep Boys, Jiffy Lube, retail outlets such as; Toys R Us, K-Mart, and Home Depot to name a few. Most of the real property occupied by these companies are owned by real estate investors and leased to these companies under a triple-net lease arrangement.

What Are Some Advantages Of A Triple-Net Leased Property

There are several advantages. First, the monthly lease agreement provides a very predictable, long term income stream to the property owner. Second, since there are no property expenses (taxes, maintenance, or insurance) to be deducted, the income stream is not impacted by future increases in property operating expenses. The property owner (investor) can enjoy a rental income stream, without property management or property expenses.

Subject to the credit worthiness of the tenant and the terms and conditions of the lease agreement, the investor can enjoy a high degree of security and should expect to have additional rental income over time as the inflation hedge feature of the lease agreement comes into play.

Can a Triple-Net Leased Property Be Used To Complete A Real Estate Exchange?

A triple-net leased property can be an excellent replacement property in completing a real estate Exchangetransaction. Many real estate investors dispose of their management intensive properties such as apartment buildings, duplexes, and office buildings, hoping to find management-free properties producing long term, predictable income.

If you are thinking of disposing of your business or investment-held property, would like to “Pay No Capital Gains Tax” and reinvest into a management and headache free property, the purchase of a triple-net leased property through a real estate Exchange, can be just what the doctor ordered.