Good morning everyone, I am looking for some advice. We have been very blessed and should be selling our current commercial property for 6m. We have found a new location to move our current operation to for 2.2m. We will be doing a 1031 exchange on these properties, and are looking to 1031 the rest into some triple net lease properties. We then want to take loans out on these properties so that we can utilize the capital to make further investments. If we were to purchase a NNN for let's say 2m, can we then take a DSCR loan and will the NNN property qualify for say a loan at approximately 75% of the purchase price of 2m? My worry is that the property will only loan for what the building is worth not the lease value.
Property Manager · Michigan Ctr, MI · Member since 2016 · 661 posts · 581 votes
11mo
Hey David,
Congrats — that’s an incredible position to be in. You’re smart to slow down and think through the 1031 and leverage strategy before signing anything. Here’s how this usually plays out:
1. 1031 into NNN properties is totally doable.
You’ll use the 1031 proceeds to buy the replacement assets (say a couple of triple-net leased buildings). That keeps your capital gains deferred. The big key is identifying within 45 days and closing within 180 days of the sale — so start lining up those NNN options early.
2. Yes, you can typically finance against NNN assets — but it’s about the lease, not just the building.
Lenders underwrite both the tenant's credit quality and the lease terms. A strong national tenant with a long-term lease (e.g., Dollar General, Starbucks, Walgreens) can absolutely support a loan at 70–75% LTV, sometimes even higher.
If it’s a mom-and-pop tenant or a short lease term, expect more conservative leverage (maybe 50–60%).
3. DSCR loans are possible but slightly different for NNN.
These loans look at net income vs. debt service — but NNN leases have almost zero landlord expenses, so the DSCR usually pencils easily if the rent is solid. The lender still focuses heavily on tenant credit and remaining lease term (they don’t want to see a 2-year lease on a 20-year loan).
4. Property value vs. lease value:
You nailed it — some lenders will lean on property appraised value while others (especially commercial lenders) base it on the income approach. The stronger and longer your lease, the higher that “income-based” valuation climbs. A short or shaky lease pushes the valuation back down toward just the building’s intrinsic worth.
My advice:
Yes, you can pull equity out post-1031 via financing — just make sure the lease is long-term and with a solid tenant. Talk with a few lenders who specialize in NNN or 1031-backedcommercial loans before you close; they’ll tell you exactly how much leverage that income stream supports; David, I really hope this helsp you a bit, I sent you a DM on BP, it's one of the reasons why i do this, I hope you can assist.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes
11mo
I have a bunch of loans against NNN properties and it's based on income. Lenders like well known tenants with good financials and long term leases if possible. Because of the high interest rates your loan to value will be lower than 75%, but hey take what you can get! Your local banker will tell you what they are looking for. Just make sure you buy a property that will be easy to lease out when the tenant leaves some day. Location is everything!