Why would someone buy a zero cash flow single tenant investment?

In Buying Property - Asked by Michael L. - Mar 4, 2010
Report Abuse
Answer this Question


Gregory G.
San Francisco, CA

1. You’ve just made a “killing” by selling your highly
appreciated property and you don’t want to buy back into
the same high priced market. A Zero Cash Flow Deal will
allow you to Cash Out your gain in the form of a “bondstyle”
re-financing and defer tax recognition. You are
then free to reinvest the “Cashed-out Equity” in real
estate or in any investment vehicle. You will have
completed your trade and be free of the 45 day and 180
day requirements. Moreover, if you make a new
investment, it will have full tax basis and you will have a
larger portfolio including both the Zero Cash Flow Deal
and the new investment. You can even use your cashed
out equity for personal purposes.
2. You have a partnership or corporation that needs more
depreciable basis to offset current income. A Zero Cash
Flow Deal will allow you to buy the most depreciable
basis with the least amount of equity, out-of-pocket.
700 S Flower St. Ste. 1400 | Los Angeles, CA 90017
3. You are concerned that Cap Rates may go back to
historic levels and want to protect your equity. If Cap
Rates just go back to 8% from current 6% levels that will
represent a 33% reduction in property values. If you own
property and have a loan of 67% or greater, you will be
wiped out. To repeat, YOUR EQUITY WILL BE WIPED
OUT. By contrast, in a Zero Cash Flow Deal the income is
“pre-sold” to the lender in the current low rate
environment. Cap Rate and interest rate changes do not
impact the value of Zero Cash Flow Deals. Why not let a
willing lender take this risk?
4. You have a threatened foreclosure with a large gain to be
recognized. A Zero Cash Flow Deal can provide an ideal
low equity trade that transfers your old basis to a new
property rather than having to recognize the gain from a
“deemed sale” under tax law.
5. You want to grow your portfolio in the safest, most riskaverse
possible way. A Zero Cash Flow Deal let’s you
leverage your tenant’s investment grade rating; and the
Zero Cash Flow Deal structure to buy property worth 10
times your equity without personal recourse; with debt
structures that generally don’t balloon for at least 20
years; and often are fully amortized by the tenant’s
rental payments over the lease term.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531
Web Reference: http://www.gregorygarver.com

Mar 5, 2010
Report Abuse
Gregory G.
San Francisco, CA

Mainly depreciation and to protect equity against rising cap rates.
Gregory Garver - Commercial Real Estate Broker
Broker License# 01716531

Mar 5, 2010
Report Abuse
Sandra S.
Encinitas, CA

Because real estate is a good investment long term and provides tax advantages through depreciation and expenses, especially to someone who does not need the cashflow income. Yet the loan amount is being reduced each year and, with some speculation, the building will appreciate over time.

Mar 5, 2010
Report Abuse
Dana L.
Napa, CA

Lots of factors to consider but the risk to reward can be great.
If it is in a good area and the comparable price for the location stands up to scrutiny then the tax write offs for depreciation and allowable deductions combined with future appreciation can give a good long term return. The tenant search is crucial though. Many properties make good sense at zero cash flow.

Mar 5, 2010
Report Abuse
Gerard H.
Saint Louis, MO

To complete a tax free exchange in saving money from IRS. Also there could be some tax benefits to go along with it. Watch out for recapture though. Call me if you would like to discuss.314.909.7600

May 19, 2010
Report Abuse

Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.

Ask a Question

Post Question