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I don't get zero cash flow? I mean won't lenders cap a multi at 1.20 dscr at the least. So do you mean low cash flow properties?
Honestly even if there was a zero cash flow scenario anything is better than paying the capital gains on the appreciation of the 100mm property. Best perks of real estate 1031 and cash-out refinance.
From my understanding lenders are typically providing high LTV's on these properties due to the tenants investment grade status. The rental income pays the debt, hence the term zero cash flow. After debt expense is covered there is no cash flow leftover. It appears you can refinance out the 20 yrs. of future cash flows up front and allow the property to be paid down as your tenant pays rent.
You essentially gain control of an asset and refi your 1031 money back out to use when you please. I like the strategy for private investors but I am not sure if PE's/REITs use the strategy and what their reasoning would be behind their decision.
Yeah, didn't know/realize he was talking about credit tenants.
100% credit tenants only. I have a post about this maybe 6mo ago.
Zero cash flow NNN deals are done for many reasons. If you need to complete a $10mil exchange, a 100% zero cash flow deal will generally leverage the full $10mil. So you can meet your debt and property exchange requirement. With their being 100% financing the need to refi is gone. You still have all your initial equity (4mil? +/-).
Also, often the debts amortization matches initial lease term. When lease term is up, you have a free and clear building.
Now you can do with your $4mil as you see fit.
There are probably big zero cash flow deals getting done but many are in the $5 -15mil range on single tenant NNN deals. Walgreens, CVS, Taco Bell, etc.
I could not find your previous post. Do you remember the title or could you include the link? Thanks
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