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I’ve spoken with many longtime Minneapolis and St. Paul duplex owners in recent months who would love to sell and retire from a career in rental property if only they could avoid capital gains tax.
Of course, as seasoned investors, they are aware of the option of doing what’s known as a 1031 or Starker Exchange, which allows you to reinvest the money into another property without paying taxes. The challenge with this, however, is right now, it’s either difficult to find a good replacement multifamily property or the duplex owners are just tired of managing property.
Believe it or not, there are other solutions.
Duplex sellers don’t have to exchange into other multifamily property. In fact, commercial investment properties, triple net properties, TIC investments, and Delaware Statuatory Trusts are all viable alternatives to owning duplexes.
But what if you don’t want to manage property any longer?
Today, let’s talk about something called a triple net property, which is often identified by the letters NNN. A net leased property is often a retail store or mall. The tenant, or tenants, pay a Central Area Maintenance fee which covers all basic maintenance to the property, insurance and property taxes. Landlords are only responsible for structural repairs, like replacing a roof or HVAC system.
Of course, this results in greatly reduced managerial duties, as the tenants are taking care of most items.
Not owning their stores frees capital for these companies to grow their businesses. In return, solid, stable companies with good credit ratings reduce the risk to NNN investors.
While these properties can be expensive, the proceeds from the sale of many metro duplexes may be more than enough for the down payment on a property like this.
Next time, we’ll talk about TIC invesments.