Posted by Frank Chin on January 30, 2002 at 06:34:20:
One of the big plusses with the NNN lease is the seller/lessor after collecting this intitial lump sum for the leasehold, still owns the underlying fee position. If he or his heirs are around at the end of the leasehold, the appreciation will be there for them to claim. The heirs would enjoy the stepped up basis at death as well.
Meanwhile, they have a lump sum to play with, and not worry about property management to boot.
There was a newspaper article about a wealthy investor who owns a brownstone here in Manhattan, NYC convicted of second degree murder killing his tenant in a lanlord tenant dispute. Some of these brownstones sell for $15 to $20 million.
The article reported said he “sold a leasehold to an investor for 7.5 million tax free.” Yes, it said tax free in the article, but I guess they meant capital gains tax free. The news article goes on to say that this is different than selling the property where he had to pay capital gains etc.
A relatively short leashold of this type goes for 30 years. The article didn’t go into the why’s. But I can see that the $7.5 million, even paying some taxes would go a long way providing for his family, and when he comes out of jail in some 20 or so years, he can reclaim the building plus the appreciation when the leasehold expires. Meanwhile he didn’t have to worry about managing the place from jail.
Properties in NYC had be doubling every 15 to 20 years. A 15 million brownstone would go up another 15 million while he’s behind bars. If this smart cookie gets out with good behavoir in 15 to 20 years, he’ll be making 1 million a year in jail.
Another variation of “making money while you sleep” and a good validation of the “buy and hold” strategy.
Certainly, a 1031 exchange is not going to solve this guys problem while in jail.