MarketScoop: Four Things to Know About Zero Cash Flow Transactions
Four Things to Know About Zero Cash Flow Transactions
1. What is a Zero Cash Flow Transaction?
Zero Cash Flow refers to a property that is highly-leveraged, secured by an investment grade tenant with a long-term triple net lease in place requiring no management responsibilities from the landlord.
In its most simplistic form, a Zero Cash Flow property produces no cash flow for the owner because the rent being paid by the tenant is equal to the mortgage owed by the landlord.
2. Why Consider a Zero Cash Flow Deal?
It may seem counterintuitive for an investment to generate no cash flow for the owner. However, this structure provides a number of benefits:
- High-leverage: the Zero Cash Flow structure allows investors to purchase a property with very little equity.
- Assumable debt: because the terms of the loan are already established, investors may be shielded from the threat of rising interest rates. The escrow period may also be reduced since financing is already in place, making Zero Cash Flows attractive to 1031 exchange buyers who need to quickly identify and close on replacement properties.
- Tax benefits: in addition to exchangers seeking relief from capital gains taxes, Zero Cash Flows can help owners offset income from other investments, thereby lessening their overall tax burdens.
3. Characteristics of a Zero Cash Flow Deal
In order to be considered a Zero Cash Flow transaction, properties should meet the following criteria:
- Strong credit: the tenant must be investment grade, with a credit rating of BBB or higher.
- Triple net: the lease expense structure should be triple net, with minimal or no landlord obligations.
- Long-term lease: the lease term is typically a minimum of 20 years.
4. Stan Johnson Company: A Proven Zero Cash Flow Track Record
Stan Johnson Company has closed more than $3.4 billion in Zero Cash Flow transactions. Trust your portfolio to experienced professionals familiar with this type of specialized transaction.
For available Zero Cash Flow properties, please view our Stan Johnson Company Property Search page (click here).