Zero Cash Flow in Triple Net Lease
Zero Cash Flow Properties or zeros are a specific type of real estate structure and that do not generate any income since all rental income is directly applied to service the debt that is taken on to finance the investment(Triple Net NNN Lease terms ). Zeros cash are characterized by:
- A tenant with an excellent (investment grade) credit rating
- Triple Net NNN Lease terms
- Long-term leases (minimum 20 years)
- Low cap rates
- Single tenancy
As the name suggests, it involves direct transfer of the net operating income or NOI of the property to pay down the debt taken on, and thus the owner receives nothing(tenant with an excellent credit rating), but tax benefits and property appreciation(zeros are a specific type of real estate structure ), eventually(Zero Cash Flow in nnn). Although this structure does not look so attractive, yet a Zero does favor investors in the following ways:
- Minimal equity: typically Zero mortgages require 10% -18% down-payment, which is minimal compared to other investments;
- Deferred taxes: Zeros can be easily used for 1033 and 1031 exchanges to defer capital gains taxes specially if the investor has a large debt to replace;
- Favorable Depreciable basis: a partnership or LLC structure can opt to use a high(er) depreciable basis when investing in a Zero;
- Fixed financing: Fixed-rate and assumable financing is typically used, which fully amortizes by end of lease term;
- Debt free property: The property will be clear of the debt by end of lease term.
Zero NNN investment properties have many other nuances, which can be best understood by calling your expert commercial real estate advisors at the Triple Net Investment Group.
