Posted by Frank Chin on January 01, 2006 at 12:34:31:
NNN for residential properties is not unheard of. But because large apartment buildings can be sold as coops and condos, its an easier way of splitting property interest as compared to splitting land, building and grounds. Then, since many residential units are “owner coocupied”, a tax free sale eliminates another big reason for doing an NNN lease.
Another big obstacle is I beleive landlord tenant laws, where “fee owner” is held responsible for providing a habitable space. But there are cases where investors buy Long Term NNN master leaseholds from “fee” owners on residential properties, act as the landlord, and in turn lease units to tenants.
Another good reason is residential investors never heard of NNN leasing.
But I see more NNN in residential for this reason. Because “baby boomers” will live longer, and own expensive real estate, where a Manhattan brownstone can cost several million dollars, they may to too old to manage the place, but still want to keep it for their heirs. Then, because the land and building is so expensive, it’ll be easier for an investor to NNN the property, make money on it for a number of years.
The investor who does NNN leasing tells me that often, the NNN leaseholder winds up buying the underlying property at a good price upon the owners death because the heirs often want quick cash right away instead of waiting years for the NNN lease to expire.
One good example of how the NNN lease was utilized was reported in the local papers a few years ago. A Manhattan landlord of a brownstown was convicted of murdering his tenant, and sentenced to 25 years to life. Since he was relatively young, he NNN the property to an investor on a long term NNN lease basis.
In the meantime, he’s got a landlord for the place. Then, in 25 years time, when he gets out of prison, he’s got a place well taken care of, and presumably would have gone up in price tremendously.
There’s no reason why NNN leases can’t be used in residential properties. It’s not as common as there appears to be less applications. But a landlord going to prison for 25 years or more is the perfect application.