You may have heard the terms “triple-net property” or “net-leased ” This refers to the type of lease a commercial tenant enters into in a retail, industrial or office property. Triple net describes a type of tenancy in which the tenant pays not only rent, but also pays for three other major expenses associated with the lease; property taxes, insurance and common-area maintenance (or CAM as it’s referred to).

What this means is that the owner pays practically no operating cost except for a modest administrative fee, has little or no direct involvement with the management of the property, but gets a rent check every month, and depending on the length of the lease, may not even need to visit the property for years. The landlord does, however retain responsibility for the repair and maintenance of the roof & structure, although there are leases called “absolute net” leased under which the tenant is responsible for even those items as well, and in any case, are unlikely to need attention with newer properties.

The best type of triple-net, or NNN lease is with an investment-grade tenant, one whose financial strength is of the highest order, and presumable will never fail to pay rent even if they cease to operate at the property. They pay the lowest rent. A Walgreens for instance, is one of the most creditworthy tenants, while a small locally based mom & pop business would be at the low end. Walgreens rent per square foot would be the lowest, while at the other end, less creditworthy tenants pay the highest rent. The lower the risk, the lower the rent. The simplicity and lack of hands-on involvement required by the owner makes these attractive and they are ideal for the investor seeking real estate without putting additional money or time into the property.

The risk, particularly with the “Free standing, Single-tenant, Triple net” lease, is that under a worst case scenario, the tenant might go under and walk away, leaving the investor with a “dark” property and no income. As a hedge against that situation, choosing a property in a solid, dynamic rental area will enable you to re-tenant the property, although it might take months to do so. There again, the creditworthiness of the tenant comes into play. Walgreens might cease to operate a store, but they will always pay their rent whether the lights are on or off.

Investors who have spent years building up a portfolio of properties and decide to liquidate their holdings need to effectuate a tax-deferred exchange, to defer their gigantic capital gains and recapture tax liabilities. Having spent years with their sleeves rolled up, managing their properties, they seek to simplify their lives and turn to NNN properties as an ideal replacement properties. After selling off their portfolio, they replace them with quality NNN properties, thus insuring them a steady income stream, little or no management responsibilities, and their tax liabilities are deferred.

We can introduce you to an array of different NNN property types, from investment grade retail to office and industrial. When you’re ready to cash out the wealth you’ve built, but have no intention of giving it all to “Uncle Sam” call Kevin Gleason and let him give you some NNN investment options to consider. It will be well worth your time.

Beginning in 2009 investors who exchange for rental or second home properties and then later convert into their personal homes will no longer be eligible for the full $250,000 to $500,000 tax-free exclusions now available on sales of principal residences. New IRS rules will require them to allocate their time of ownership between taxable investment or second home usage and non-taxable principal residential usage.

It has been a fairly common practice for investors to shield themselves from capital gains by moving into exchange properties for a couple of years and thereby converting previously taxable gains into non-taxable principal residential profits.  Under the old law, an investor could exchange into a property, rented out for three years and move in and use the property as a principal residence for two years.  Establishing the property as a principal residence, triggered the tax-free exclusion of $250,000 to $500,000.  With the new law, the exclusion is pro-rated; applying only to the years it was a principle residence.

The new law could mean significant changes in the tax positions of some properties and requires a careful review.  Investors need to consult with their tax professionals and adjust strategies to avoid unwelcome tax surprises in the future.

We previewed a wholesale property a while ago that we found very interesting. Its a 1950’s two story colonial. Overall in pretty fair condition, but another example of a rehab gone bad. The rehaber was trying to bring in today’s more popular open concept design to the first floor living area. First impression - unique and very interesting! But there were a few things that raised our eyebrows.

Opening up a load bearing wall was the key to creating a new open space. But, guess what? - not an ounce of understanding that if the 2nd floor would no longer be supported by the wall, it would have to be supported by something!

Here’s what’s cool! We found out that, at least in this case, if you take out the load bearing wall of a house, it does not necessarily mean eminent collapse! We always wondered about that! In fact, this place was looking pretty good - just a few small crack in the drywall!

We always thought that if you cut out a load bearing wall you’d better run for your life! So we did learn something here - sometimes the house comes down immediately - sometimes it needs a year or two!

Then we looked in the basement and realized that to create the open concept, the rehaber decided that the 1st floor half bath was in the way too! So that ended up in the dumpster along with the wall! We know that in this neighborhood a 1-1/2 bath home sell for $13K - $14K more than a one bath home. Oops!

This rehaber was pretty fortunate, all things considered. The second floor is still up there and the problem can be fixed. We’re pretty sure the 1/2 bath needs to go back in too, but - well, at least it will be new!

We love to work with rehabers.

We’d like to see you add value – not subtract it!

We can be your resource, your partner or both. We’re pretty sure the point of rehabing is to add value and profit from it. Call us if you agree!

Have a question about a wall - not sure if it’s load bearing or not?  We can help; just send us a comment and we’ll get back to you.

Copyright © 2008 Gohlke & Associates, LLC - All rights reserved

We visited a very sick house not too long ago. It’s a house that will literally die if its present stakeholder, a bank, does not get it the immediate medical attention that it needs! We think “medical attention” is the right phrase – this house IS SICK – having become a health hazard in just 5 or 6 weeks of complete neglect. If the present “disease” is left unchecked a day will come when the fix for this once loved home will be a bulldozer!

 This was a solid house when the bank became its reluctant owner. But with last year’s heavy rains and commensurate basement moisture issues, residual dampness in this basement is creating a mega problem. A $150 dehumidifier and some much needed ventilation is all that it would have taken to keep this cancer from getting a foothold.

 We list foreclosures and help buyers find them. We get inside an awful lot of these properties and sometimes “awful” is exactly the right word – today’s experience is testament to that. We’ll spare you more about the sites and smells when we got to the bottom of the basement stairs – let’s just say we turned tail and didn’t feel much like eating for awhile!

 We know that some of the institutions who are dealing with pre-foreclosures and REOs are struggling to keep up. But mold doesn’t wait for protocol or paperwork. Bad financial situations can become financial disasters in only a few short months without at least some minimal property management. We’ve seen too many vacant foreclosures that sell only after a long time and only after large price cuts. Its a shame.

Click Here for Related Article on Properties For Sale “As Is”

Copyright © 2008 Gohlke & Associates, LLC - All rights reserved

We can prevent problems like this, market and manage vacant properties, and keep values from melting away like ice cream on a hot summer day. If you are a bank, mortgage company or distressed property owner, give us a call.

Our rock solid analytical tools and methods are second to none!

Distressed Property Inspection and Cost Estimator - with 350+ inspection points, you can be sure we know what needs attention and how much it will cost. Partner with us or purchase and rehab on your own - we can give you confidence in the financial reward potential of your properties.

Investment Property Analyzer – a scenario based analytical tool that illustrates a property’s financial dynamics, helping to determine its viability and optimum purchase price and terms; great for both income and rehab properties

Appreciation Calendar – property value change from any year to any other year (1995 to present)

Investment Property Values to Interest Rates Chart – How the present interest rates affect the value of properties you want to buy or sell

Real Estate Investment Counseling – unique counseling for our buyer clients not provided by many other realtors or offered on a fee basis as an independant, professional unbiased third party in decision making.