Zero Flow Property

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The National Real Estate Exchange Network is currently marketing a number of single tenant, bond net leased investment properties which you may want to be aware of. These properties can be very valuable to those in a 1031 or 1033 Tax-Deferred Exchange. These properties are fully leveraged and generate zero flow over the entire primary term of the lease.

The National Real Estate Exchange Network maintains a list of properties which we are currently marketing. Please note that these properties tend to move quickly and we are continuously adding to our inventory of available product. Please inquire using the below reply form regarding your specific needs. Chances are we should be able to determine the right property to fit your needs.

Popular choice for estate planning, trusts or pensions where the income which will be generated after the debt is paid off and can be left to heirs. Tax Planning Benefits include satisfying exchange requirements with very little equity, interest and depreciation deductions.

Recent examples include:

(1) Sold a store at buyer with $10 million in cash and $12 million in debt to replace from a previous sale (1031). The buyer closed with the full $10 million dollars and subsequently refinanced the property to pull out $8 million. In the end, the Buyer sheltered gain on a $22 million sale, pulled out $8 million cash tax deferred and owns the $22 million store on a bond net lease for $2.2 million in cash.

(2) Large Apartment and Commercial Office Building owner accepted an offer and closed on one of their properties, a $65 million Commercial Office Building. With the 45-day clock ticking, they were not finding any suitable replacement properties and were in a serious tax bind. Of the $65 million, $45 million was cash and $20 million was debt.. This buyer closed on a $65 million portfolio and within 2-3 weeks, pulled out $40 million in cash. With $40 million in hand tax-free, they could now take their time in negotiating a purchase of a replacement property without the gun to their head. Alternatively, they could place this cash in whatever other investment they want, even the stock market! In the mean time, they not only sheltered their gain, but immediately enjoy lots of tax benefits in the way of interest expense and depreciation on the net-leased portfolio.

What is a 1031 exchange & why should I do one? We specialize in assisting tax exchange buyers locate appropriate replacement properties and complete a tax deferred exchange. Recently, close to $1 Billion in sales of properties to tax oriented Section 1031 and 1033 purchasers have been completed.

Tax Issues: Any sale of business or investment property is a potentially taxable event, and the two areas of tax liability that can be triggered are capital gains and the recapture of depreciation. The Internal Revenue Code Section 1031 allows for 100% deferment of capital gains tax and depreciation recapture if the property is exchanged for like-kind property.

Determining Gain or Loss: The realized gain from the sale or other disposition of property is the excess amount realized over the adjusted basis. The adjusted basis is the initial basis plus any capital improvements less depreciation. Example: JP Development builds a shopping center for a total cost of $10.0 million (the initial basis) comprised of $3.0 million in equity and $7.0 million in debt. Some years later JP Development sells the center for $14.0 million. Assuming 20% depreciation and no capital improvements, the adjusted basis of sale is $8 million resulting in a $6 million taxable gain. At the current 28% capital gains tax rate, the tax liability on this gain would be $1.68 million.

Replacement Property: The property sold is referred to as the "Relinquished Property" and the newly acquired exchange is called the "Replacement Property". JP Development would need to find a Replacement Property of $14.0 million, the total sales price, or greater. The property would need to be purchased with a minimum of $7.0 million in equity (the equity created from the sale). Currently, like-kind real property by definition is any real property, other than your domicile, so JP Development could exchange the shopping center for a hotel, office building, industrial warehouse, etc.

Net-Leased Properties: Net-leased properties offer the security and limited responsibility/management that are ideal for most 1031 Exchange Buyers. The lease structure allows for passive management with a consistent income stream from a credit tenant.

Timing: Exchange buyers have 45 days following the close of their sale to identify up to three potential Replacement Properties. The acquisition of one of those properties must occur no later than 180 days after the original sale. The money from the sale is typically held by an accommodator or title company which specializes in 1031 Exchanges.

Why buy zero cash flow properties?
Merits of these properties...

Very High Leverage (typically 85% to 90%);These are a vehicle to cover large debt requirements with very low equity (typically for 1031 trades)These provide the ability to cover large condemnation proceeds with relatively low equity (for 1033 situations) These properties can close in as quick as seven to ten days if needed and the due diligence is typically very simple. The potential for above market returns when calculated over extended periods of time (see below). Example of Internal Rate of Return Calculation on a "Zero"Assumptions: Buy a property at 12% equity over an assumed debt of $5 million ($600,000); Buyer will get 0% cash flow on this equity for the primary term of 22 years; Residual Value at the end of the twenty second year is assumed to be the purchase price escalated at 2% annually over the term (8,657,486); Internal Rate of Return would be 12.90% under the above scenario. (This does not take any positive tax issues into consideration)

NNN Bond Lease Summary: The "bond" lease structure is the most secure form of real estate lease for an owner/landlord. Overall the tenant assumes virtually all risks and responsibility of ownership over the lease term. Following are the basic terms of a "bond" lease:Lease Term: 20 - 25 years

Exposures: Tenant is responsible for all costs including operating expenses (CAM, real estate taxes and insurance), maintenance, repairs and replacement.

Landlord Responsibilities: None Assignment/Sublet: Tenant has the right to assign/sublet the lease although the guaranty shall remain in full force and effect.

Casualty/Condemnation:Tenant assumes risk of casualty and condemnation.

For more information, complete the below form.

LICENSE VERIFICATION

Are you a Licensed Real Estate Agent?

If yes, what State(s) / Country are you licensed in?

VERIFICATION OF YOUR ROLE - CHOOSE ONE

1. Principal Owner / Seller / Developer
You are the Owner / Developer / Seller and not exclusively working with only one agent. If licensed, you will act as Principal Seller only.

2. Principal Buyer / Investor
You are the Buyer / Investor and not exclusively working with only one agent. If licensed, you will act as a Principal Buyer only.

3. Seller's Direct Agent
You are a licensed listing agent or agent who has full control/contact with the seller/owner directly and not through any other agent/finder expecting a commission. here if you are a Seller's Direct Agent and use this form. Principals Sellers, please continue down this form.

4. Buyer's Direct Agent
You are a licensed agent in direct contact with the actual buyer/investor and not through any other agent/finder expecting a commission. here if you are a Buyer's Direct Agent and use this form. Principals Buyers, please continue down this form.

5. Other (Explain)

CONTACT INFORMATION

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Name & Title

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City, County County

State, Zip Code          Zip Code

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ADDITIONAL INFORMATION

Are you in an Active 1031 Exchange?   YES   NO

If YES . . . . . .

Facts on the Property you are Selling . . .

Status of your Property?
       On Market or soon to be
       Accepted Contract / In Escrow / Sale Pending
       Sold Already

: Closing Date / Date of Sale
: Sales Price
: Total Loans Outstanding at Closing

Your Acquisition Criteria: What are you looking to purchase?

: Your Price Range Considered
: Number of Properties Wanted
: Maximum New Loan % Considered
: Minimum CAP Rate Considered
: Total Cash Available for Purchase
: Property Type Wanted
: Date Ready to Write Offers

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