A “Zero” investment is a real estate investment that provides a relatively inexpensive source of depreciation and interest expense to offset passive income from other real estate investments. By purchasing a Zero, a buyer is “purchasing” the tax benefits from interest expense deduction on the asset’s loan and the depreciation from the asset’s tax basis. Typically, the asset’s depreciable life for a commercial property is 39 years; however depreciation in the initial years can be increased following a cost segmentation study.
Here are some typical elements of a Zero Transaction:
- Real estate investment subject to high leverage (approx. 90%), non-recourse, long-term loan based primarily on the creditworthiness of the tenant
- Absolute NNN leased, single tenant property, no landlord responsibilities
- High credit, investment grade rated tenant of a retail, commercial, medical or industrial property
- Long term lease (20+ years)
- Rent structured to equal debt service (DSCR = 1.0). Loans are self liquidating.
- Required equity is priced as a percentage of the debt
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
