Triple Net Lease Investment Property Exchange

by The Real Estate Buyers

in ,

In today’s fluctuating economy, investors are in search of ways to increase their return on investment (ROI) while lessening their income tax burden.  Commercial real estate represents one of the best investment opportunities today, particularly those properties with long-term triple net leases in place.  If the investor can purchase these properties using the 1031 tax-deferred exchange program, the investment potential becomes even more attractive.

The 1031 exchange program, provided for in the U.S. tax code, allows for the sale and purchase of like-kind properties with a deferral of capital gains and depreciation tax obligations.  In essence, as long as an individual reinvests profits into another property or properties within a specified time period, he can continue to defer the tax debt.  As a result, the money that would typically go to paying taxes on capital gains and depreciation can be leveraged back into cash-flowing investment property.

Triple net lease investment properties work especially well in conjunction with the 1031 exchange program.  These properties, particularly when leased long-term to national tenants such as Lowes, PetSmart, Applebee’s, Home Depot, etc., provide the investor with substantial ROI while requiring minimal hands-on management responsibility.  Tenants often prefer this structure, especially in an unstable economy, because they can preserve precious capital for other purposes.  The tenant assumes management responsibility of the property and bears all related costs for taxes, repairs, maintenance, etc., in addition to their standard, periodic lease payments.

The 1031 exchange program, when used for triple net lease investment properties, will increase the investor’s cash flow and total net worth.  The investor must understand the way the 1031 exchange program works, however, and they must ensure strict compliance with the program’s requirements in order to achieve the maximum benefit and avoid any potential problems with the Internal Revenue Service.  Many resources exist to assist the investor with the 1031 exchange program, including published and online literature and professional tax consultants or CPAs.

Basically, upon selling a property that produces capital gains, the investor has a specific time period to identify a like-kind property and declare his intention to purchase it.  The investor must then complete all due diligence and close on the property’s purchase within an additional specified time period.  As long as all required IRS forms are filed, it’s really just that simple.

Commercial properties with triple net leases in place offer investors a valuable opportunity for the creation of wealth.  Using the 1031 exchange program in conjunction with these properties will help the investor grow their income-producing property portfolio even more quickly.

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