For seasoned commercial real estate investors, there are several options available when deciding what to do with the proceeds from the sale of a single-tenant, net leased property. Let’s discuss four of those options

The first option to discuss is a 1031 exchange, also known as a like-kind exchange. This is a tax-deferred strategy that allows real estate investors to sell a property and reinvest the proceeds into a like-kind property. The IRS requires that the investor must identify the replacement property within 45 days of the sale and complete the transaction within 180 days. The primary benefit of a 1031 exchange is that it allows investors to defer paying taxes on the sale, which provides additional capital for reinvestment and potentially greater returns over time. 

Alternatively, investors may choose to pay the taxes and use the proceeds to acquire another property with higher returns. In the same vein, an investor could use the capital to buy down the loan on another asset, which would reduce the amount of interest paid over time and potentially increase the property’s cash flow.

For those looking to take a more proactive approach, using the proceeds to reposition another property may be a viable option. This involves investing in improvements or changes to the property that could increase its value or generate more income. Examples include upgrading infrastructure, changing zoning, or developing the property to add additional income streams. Repositioning the property is a long-term strategy aimed at maximizing the property’s potential and creating additional value.

Lastly, and more conservatively, another option is to pay the taxes owed and invest the remaining amount in an investment vehicle with a higher annual yield than the rent increases that would have occurred in the lease of the disposition property. Using this strategy may bide some time, as investors position themselves to wait out the current market and jump back into the CRE investment world when some of the uncertainties of today’s market have worked themselves out. 

Overall, there are ample options available to commercial real estate investors when deciding what to do with the proceeds from a sale. The choice ultimately depends on the investor’s goals, risk tolerance, and long-term strategy for their portfolio.