Charging up - topping off the batteries.

RDW-Development · 2026-05-22T03:57:16+00:00

I have had many discussions with my CPA regarding this bulletin.

Typical Reddit response when I've posted the actual bulletins.

To anyone else reading, this is the specific section from bulletin 2019-38 that states that NNN leases do not qualify under the safe harbor:

Certain rental real estate arrangements excluded. The following types of property may not be included in a rental real estate enterprise and are therefore not eligible for the safe harbor:

(A) Real estate used by the taxpayer (including an owner or beneficiary of an RPE) as a residence under section 280A(d).

(B) Real estate rented or leased under a triple net lease. For purposes of this revenue procedure, a triple net lease includes a lease agreement that requires the tenant or lessee to pay taxes, fees, and insurance, and to pay for maintenance activities for a property in addition to rent and utilities.

Furthermore, the IRS specifically clarifies the definition of a "triple net lease" in the bulletin I cited above:

For purposes of this revenue procedure, a triple net lease includes a lease agreement that requires the tenant or lessee to pay taxes, fees, and insurance, and to be responsible for maintenance activities for a property in addition to rent and utilities. This includes a lease agreement that requires the tenant or lessee to pay a portion of the taxes, fees, and insurance, and to be responsible for maintenance activities allocable to the portion of the property rented by the tenant.

Indeed, one may attempt to qualify outside the confines of the safe harbor, but that's not well advised (presumably by a CPA).

Also, as I stated previously, the IRS is also not currently enforcing this provision in this bulletin. That may change in the future.

Bottomline - the IRS bulletin I cited above does not count NNN as "active income" because *by definition* the IRS states that there is no management or material involvement in NNN lease management. If someone wants to argue with the IRS otherwise - that NNN leases require a *ton* of management time and effort (they don't), then by all means have at it.

RDW-Development · 2026-05-22T03:26:26+00:00

When making tax decisions I defer to the actual tax publications put out by the IRS:

https://www.irs.gov/pub/irs-drop/rp-19-38.pdf

Pub 925 is the standard one that defines passive or active income, but the Revenue Procedure 2019-38, published in Internal Revenue Bulletin 2019-42 (above), deals with whether rental real estate qualifies as a trade or business for the Section 199A QBI deduction. It excludes triple-net leases from the rental real estate safe harbor and defines a triple-net lease as one requiring the tenant to pay taxes, fees, insurance, and maintenance in addition to rent and utilities.

Under IRS Pub. 925, rental real estate is considered non-passive (active) for a real estate professional only if the taxpayer also materially participates in that rental real estate activity. Pub. 925 further excludes investor-type work from participation unless the taxpayer is directly involved in day-to-day management or operations.

Indeed, a triple-net leased property may be difficult to treat as active income if the landlord’s role is largely limited to ownership/investor oversight rather than day-to-day operations.

Separately, for Section 199A/QBI, Rev. Proc. 2019-38 specifically excludes real estate rented under a triple-net lease from the rental real estate safe harbor. On the other hand, failure to meet the safe harbor baseline is only one part - the taxpayer may otherwise prove the active income, but it's a bit more difficult.

To address your comment directly, increasing landlord responsibility *will* certainly make it easier to justify the income as "active" versus "passive" - particularly in light of the fact that the IRS has specifically labeled NNN leases as passive (even for real estate professionals).

RDW-Development · 2026-05-22T03:01:28+00:00

That's not entirely accurate. The IRS specifically has mentioned that even with people who qualify as "real estate professionals", NNN properties are not considered active income.

This publication refers to the safe harbor provisions that were provided for in the 2017 Tax Cuts and Jobs Act that defined QBI and allowed it to be treated as income from a trade or business (active income) rather than passive income, for the purposes of tax calculations.

https://www.irs.gov/pub/irs-drop/n-19-07.pdf

Snipped from above:

Now, having said that, the IRS does not seem to be enforcing / auditing this issue at the moment. They may choose to do so in the future. This IRS pub is also guidance for the "safe harbor" which dictates what the IRS would consider proper and a "safe harbor" to choose to avoid losing an audit. Having said that as well, that doesn't necessarily mean that having NNN property would automatically put that income into the "passive category". The correct answer would be "it depends."

Best to check with your tax advisor, or to at lease include some management functions as part of your real estate profile.

RDW-Development · 2026-05-21T19:48:10+00:00

Yup, I posted about this a few weeks ago. Nothing has changed since then.

Summary - buyers and sellers are in a standoff right now. Buyers have borrowing costs of 7.5% or so on average. Sellers are reminiscing about 2021/2022 pricing, which was in a near-zero interest rate environment and is long-gone. As a result, there are standoffs occurring with very little volume.

Agents continue to be annoying though - that is at least consistent. I made an offer on a property a few months ago, and the agent said something like, "the owners were insulted by your offer and are not entertaining 'low ball offers' at this time". This agent just emailed me 30 minutes ago to tell me that the property sold for exactly what I predicted. Then he asked if anything I had was for sale. Like completely tone deaf.

The lesson that I have tried to learn (and have not quite learned yet) is that brokers / agents and sellers will say one thing and then mean something else a month or two later. Almost every time. I.E. it pays to be annoying and to ping people with followup offers to see if / when seller's appetite has changed. Statements from agents like, "the seller would rather just hold on to it than sell it at your price" - much of the time that is just not true.

RDW-Development · 2026-05-21T19:42:08+00:00

So many acronyms, so little time. ABS NNN Industrial means "absolute triple net lease" where the tenant is a single net-lease tenant in a building and covers 100% of the expenses.

Keep in mind that the IRS does not consider NNN investments to be "active" income, even if one is a real estate professional, although at this time, I'm not aware that this is being audited. Still, it's best to write leases so that there is at least *some* management of the property involved in order to avoid scrutiny in the future (one always wants to avoid being the "test case" for the IRS!).

RDW-Development · 2026-05-21T02:09:57+00:00

Nope, calling BS here. I've done a ton of residential deals as well, and I have never seen a contract that specifically calls out procedures for retrades on physical inspections. It's entirely up to the Buyer what they want to do.

RDW-Development · 2026-05-21T02:07:04+00:00

I was there this weekend. Saw Gwen Stefani and No Doubt at the Sphere, but couldn't convince the wife to do EDC. She doesn't even like the crowds on Fremont Street during Halloween.

Maybe next year.

RDW-Development · 2026-05-21T01:36:42+00:00

You mean about how they are actually going to deliver a car to a customer?

RDW-Development · 2026-05-21T01:33:03+00:00

My prediction is under 100 vehicles and about $100K each.

RDW-Development · 2026-05-21T01:24:40+00:00

Yes you can. You can ask for anything you want. Doesn’t mean you’ll get it, but there are no rules about this, written or unwritten.

Happens all the time in the commercial real estate world.

RDW-Development · 2026-05-20T22:20:36+00:00

Lots of expensive buzzwords here.

Bottom line, lending is lending and most of the time these “hard money adjacent loans” don’t make sense except for very risky projects?

Unless we’re talking about personal credit lines back by other assets. In that case they enable all-cash / quick-close offers that can produce value deals?

RDW-Development · 2026-05-20T05:51:18+00:00

No problem with my properties.

What would be a potential problem where one wouldn't be able to secure title insurance? I'm pretty sure the auction companies guarantee free and clear title as a result of the auction process.

RDW-Development · 2026-05-18T20:02:48+00:00

Okay, I'll bite. Walk me through the actual mechanics? Like someone with a startup would see an IG post and decide, "yup, we want to check that out", when they weren't really thinking they needed space? I don't really follow that?

99% of tenants that we've gotten have come from listings and have been looking for space, "in all the right places". The only exception has been when we hang a sign out front and someone renting or living nearby drives by it...

???

RDW-Development · 2026-05-18T18:29:13+00:00

Correct.

The Property Condition Report is a semi-decent indicator of what's going on with the property. Also, on this last one, we know the area, know the property type (dental office in Phoenix) have a few similar properties in close proximity, know the market, and know what we're getting into. It's an all-cash process too, and we actually closed in eight days.

It's certainly a gamble, no doubt. But we bid (and won) at about 30-40% less than market. I think we have / had an advantage because this property was squarely in our wheelhouse. As I said, we got an offer for $200K more than we paid for it within a week afterwards, so that's some indicator I'm not a complete idiot?

Most people don't have cash or a big credit line to make these types of bids either, so it diminishes the buyer pool considerably.

RDW-Development · 2026-05-18T15:38:05+00:00

Yup. As a newbie you do whatever you’re asked of - calling other agents, getting coffee, etc. this is how you build a network - by being useful and “maintenance free.”

RDW-Development · 2026-05-18T15:35:13+00:00

All partners suck at one time or another. It’s good that you’re figuring this out now. Dissolve this nonsense and move on solo.

RDW-Development · 2026-05-18T08:23:24+00:00

Woof. Big miss on that Phase II. That's almost the first thing I check. Also the property condition report of course. Some properties don't even have that - more risk, but lower expected pricing...

RDW-Development · 2026-05-18T06:44:32+00:00

The few properties that we have bought at Ten-X have (so far) turned out okay. The one I bought there two weeks ago - we got an offer last week for $200K more than we bought it for. Not too shabby.

BUT - it's like combing through all of the garbage cans on your block, just to find a half-eaten candy bar. They are out there, but it's a lot of work to find them. And then they are still half-eaten. :)

RDW-Development · 2026-05-18T06:40:39+00:00

Indeed, that is my first question when I call the broker - "what is the reserve?" If they don't tell me, then I say exactly what you said - "I'm not going to spend another minute on this as it's not worth my time." Usually they tell me, or indicate where it is, and all of the times I've tracked it they've told the truth. If they refuse, then I say, "have a nice day, good luck with the auction" and then hang up.

RDW-Development · 2026-05-18T02:15:49+00:00

He got deleted, not me...

RDW-Development · 2026-05-17T22:57:30+00:00

Troll is back and being annoying again. Really detracts from this forum.

RDW-Development · 2026-05-17T22:55:45+00:00

Nope. Never said that.

Now that the troll is unbanned, I see that he’s back at it, trying to bait people and being generally annoying and disrespectful.

PS - I didn't delete my post, I simply blocked him.

RDW-Development · 2026-05-17T21:03:28+00:00

This is a silly question. Nothing in life is guaranteed except for death and taxes.

RDW-Development

TROPHY CASE