Sellers have a maximum of 180 calendar days from the closing of the initial sale to complete the 1031 and exchange. Within the first 45 days of this period a seller must designate candidate properties and identify them to the IRS. A seller may target up to three properties regardless of value or a group of properties with a combined value that does not exceed 200 percent of the value of the initial property sale. The funds in a trust account can be used as earnest money for designated property once all IRS requirements for a 1031 transaction are met.
NNN investments are extremely popular in today's competitive 1031 market. The market has both experienced owners of triple net leases and first time real estate investors just trying to defer real estate taxes and abiding by the 1031 IRS tax codes. Some investors believe that a freestanding retail NNN property allows for a minimal return. However, when vacancy factors, management fees, tenant finish costs and leasing commissions are factored in the equation, the conservative triple net leased property can actually come out ahead in the long term without the landlord problems.
NNN stands for net, net, net. Often investors and developers will use different terms. These are our definitions. Absolute NNN lease = no landlord responsibilities. The tenant pays directly all real estate property taxes and insurance, HVAC, parking lot, CAM, roof and structure. Triple net (NNN) lease the landlord pays for structure only. Double net (NN) lease = landlord is responsible for roof and structure. In addition terms such as ground leases, fee simple, unsubordinated ground leases are used frequently. Fee simple property the owner is purchasing the building and Land. Unsubordinated ground lease is when the owner owns the land only and the tenant at its own cost builds the building. After the option period expires of if the tenant vacates, the owner acquires the building free. Ground lease means the owner owns the building and leases the ground. The owner builds no equity and when the ground lease expires the building reverts to the lessor of the ground.
Sellers of income producing real estate property have a choice to pay real estate capital gains taxes or defer the tax. They have to set up an account with a qualified intermediary or real estate attorney in order to guide them with a 1031 tax deferred exchange or 1031 and tax exchange. These have been in existence for years and the IRS says as long as you trade into another real estate property at least equal in value or greater you can defer paying the real estate capital taxes. Over 80 % of single tenant investments are sold to investors completing a 1031 exchange. Walgreens, CVS, Rite-aid in the drug pharmacy industry have been popular tenants. Other tenants include 7 Eleven, Advance Auto Parts, Family Dollar, Dollar General, Federal Express, Home Depot, Lowes, and National Restaurants.