Zero cash flow self liquidating promotion
Earnings from limited partnerships often arrive in the form of phantom income. The financing is already in place, and the loan is easily and quickly assumable at low cost. Your sale results in all cash or close to all cash.
You want to grow your portfolio in the safest, most riskaverse possible way. Zero Cash Flows are popular choices for estate planning, trusts and pensions who enjoy the income generated after the debt is paid off. In the mean time, they not only sheltered their gain, but immediately enjoyed lots of tax benefits in the way of interest and depreciation expense on the zero cash flow portfolio. National One of the least understood types of real estate structure in the net lease market today is a zero cash flow property.
This might not sound attractive to all investors, but a property with this structure does have its benefits. 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. First, it is an opportunity to buy an absolute net leased property for a minimal amount of equity. Zero cash flow deals are especially attractive to investors looking for a quick and efficient completion of a or exchange.
The realized gain from the sale or other disposition of property is the excess amount realized over the adjusted basis. The borrower is thus liable for tax on this phantom income. The acquisition of one of those properties must occur no later than days after the original sale. Alternatively, they could place this cash in whatever other investment they want, even the stock market if they want. These properties can be very valuable to those in a or Tax-Deferred Exchange.
The short Exchange day deadline restricts timeframes, negotiating power and often result in having to settle for unsatisfactory replacement properties. We are currently marketing a number of single tenant, bond net leased zero cash flow investment properties which you may want to be aware of.
The money from the sale is typically held by an accommodator or title company which specializes in Exchanges. The potential for above market returns when calculated over extended periods of time see below. The lease structure allows for passive management with a consistent income stream from a credit tenant.
Tenant assumes risk of casualty and condemnation. These losses can be substantial in the early years of the loan, a time at which the combined offset from depreciation and interest expense far exceed the rental income.
Available zero cash flow properties are subject to prior sale or withdrawal at any time. At the end of the loan term, the property is owned free and clear of debt.
If concerned that you might not be able to find like-kind replacement properties to satisfy your exchange and successfully defer paying capital gain taxes, Contact Us. With the day clock ticking down, they were not finding any suitable replacement properties and were in a serious tax bind. For most of us, that time would be never.