A NNN investment property seller’s success from a NNN triple net or 1031 Exchange property investment isn’t only determining the best time to buy, but also having a rock-solid, defined SELL strategy, keeping in mind the following:
Infrastructure: Sales increase, as does the property value if customers can access a NNN property because of an improved road, new traffic signal or an upgraded sidewalk;
Improvements: The value of the building and property increases when the NNN investment property is improved up or tenants upgrade to a franchisor’s latest model;
Tenant business: Industry trends can show when it’s time to sell for e.g. after 2008, triple net NNN property dollar stores have been good investments, because they were in demand; and
Lease renewal: 1031 Exchange net property Investors or NNN triple net property Investors will favorably view a NNN triple net investment property if the tenant just signed or renewed a long-term lease.
NNN triple net investment property sellers have three broad categories:
Developer: Always, consider the developer seller’s motivations. A developer’s costs will be relatively low because of scale in creating a large amount of product. One of the benefits is that the lease is already drawn, and a firm negotiation of the terms can eliminate the chance of major contract surprises. The main negative is that developers sometimes give in to a strong tenant’s demands, even though the terms may be detrimental to the property’s value. Second, there is no history for the NNN property.
Users: Despite the fact that there is a change in status for the user-seller, the sale/leaseback provides a number of advantages to both seller and buyer. The seller frees up capital to expand or enhance the business and the buyer, lowering the cost of capital. A buyer on the other hand benefits by predictable rate of return plus the benefit of any property appreciation, a built-in, lease-paying tenant and potential tax deductions and credits to offset a portion of rental income.
Investor: This type of seller presents a verifiable entity for the buying investor’s analysis. Investors can evaluate rent, expense, and tax history to calculate expectations of future income and risk. Even after the prospective buyer has analyzed and approved the seller’s lease, stipulate a review of an estoppel as a contingency of closing. Many sellers only are willing to involve a tenant during the final stages of the transaction, when they are assured of a sale.
NNN investment property or 1031 Exchange sellers also benefit by being able to customize a transaction, negotiating sale and lease terms that reflect unique landlord and tenant needs. Buyer investors, for example, may agree to a higher purchase price in exchange for rent escalations, rather than taking the risk of COLA increases. They may trade a short initial term for a series of 10-year rather than five-year options. NNN Tenants may feel comfortable with the obligations of a bond-type lease because they know the property.
One potential negative is the possibility that an investor seller over-improves the NNN investment property to enhance the company’s image and expects the buyer investor to cover this “extra”. This occurs most often with office buildings, but over-improved industrial facilities can be even more difficult to evaluate.
