The Benefits Of A Section 1031 NNN Investment
Among the many choices available to a real estate investor using Section 1031 of the Internal Revenue Code are 1031 NNN transactions. NNN real estate, or triple net leased property, allows the investor to get the most possible money out of his property. The investor is the owner of a free standing building that houses one tenant, usually a commercial enterprise such as a department store, a multi-family unit or an industrial enterprise. A business renting this property from an investor is responsible for all aspects of the upkeep and maintenance of the building, as well as running the business, paying the taxes, the insurance and making any improvements that may be needed. As well, the tenant of such a property is bound into a long-term lease that may not be broken. At first glance, 1031 NNN properties are a winning situation for the investor who retains the power to make business decisions that will affect his property, while receiving a monthly check from his tenant, However, 1031 NNN transactions are particularly difficult to arrange, and the investor is advised to contract good advisors in the form of real estate experts and attorneys that can circumnavigate all of the complexities involved both in implementing an NNN deal and using Section 1031 to acquire it.
The advantages for the investor in a 1031 NNN transaction are numerous. For example, the availability of receiving a steady income from a tenant with a long-term contract, the freedom from upkeep and care of the property since that is the responsibility of the tenant, and secure cash flow with minimal actions can be strong inducers into the acquisition of 1031 NNN real estate. On the other hand, 1031 NNN deals are not without their risks, risks that can be plentiful and substantial. Many aspects of these complicated deals must be studied thoroughly and in deep detail in order to make advantageous investing decisions. The tenant’s credit rating must be examined, among many other important considerations, and the investor should remember the importance of other factors such as location, the size of the property, what it will be used for, the condition of the structure and the future of a particular type of business in the location of the 1031 NNN property. Also of importance is the lease, which is generally drawn up by the tenant and may contain some unwelcome surprises for the unwary investor. Investing in an NNN property is an endeavor that should not be approached lightly; although it offers great potential for income generation, it can also be the source of great unexpected losses.
Utilizing Section 1031 to obtain this type of property requires the same steps involved in the acquisition of any other type of property using this method. Although these transactions are more complicated and difficult to do, the same principles still apply. Investors must use caution when using any exchange transaction to obtain 1031 NNN property using Section 1031, hoping to earn deferment from capital gains taxes, otherwise the move could be counterproductive.
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