TIC Investing - Tenant-in-Common Investments
There are two classifications for Tenant in Common properties when investing into Real Estate. It is very important that you understand the difference. Give us call and let us explain.
How can a Tenant In Common 1031 Exchange benefit you?
TICs are properties in which you own an undivided share and deed. You can receive monthly income and all tax shelters for your pro-rata percentage share.
You may own management-intensive real estate and may want to free yourself from the problems associated with management. Although you are comfortable with real estate investing, and have had good returns in the past, you do not like the daily headaches that can be associated with real estate management. You are ready to give up the hassles of dealing with tenants, maintaining facilities, paying bills, etc. You would like to sell your property but are faced with onerous tax consequences on the sale. You’d rather enjoy the income from the property while leaving the management to someone else. With a TIC (Tenant-in-Common)
1031 Exchange, you can do precisely that.
A TIC 1031 Exchange allows you to exchange your management-intensive property for an institutional-quality property with the potential to generate steady income, tax benefits and appreciation. With a TIC Exchange, you no longer have to feel burdened by your real estate. Through your management contract, a manager will be retained to manage the asset while you enjoy all the benefits that accompany the ownership and freedom from management duties.
Your income from the replacement property may be higher than what you were receiving from the original property, depending on your leverage. You can earn substantial cash flow that may be significantly off-set by the depreciation of your basis in your new TIC purchase.
No capital gains taxes may be due until the replacement property is eventually sold. If you pass away while owning a property, your heirs may receive a stepped-up basis and the capital gains tax could be completely avoided. You should meet with your tax advisor to further discuss your specific situation.
In 2002, the IRS issued guidelines (Revenue Procedure 2002-22) governing the unique structure of Tenant In Common (TIC) property investments. According to these (IRS) guidelines, a Tenant In Common (TIC), also known as co-ownership of real estate (CORE), should have no more than 35 investors. The typical structure for this includes from 12 to 20 Tenants in Common investors in one particular property.
In a simple and easy language, a tenant in common (TIC) is a property owned by two or more persons at the same time. The Tenants In Common (TIC) investors have an undivided interests in the property or designated interests of differing sizes. Each of the owners retain the right to sell his or her share of the property as he/she sees fit. Now upon death, the decedent's interest passes to his or her heirs named in the will, who then become new tenants in common with the surviving tenants in common.
As tenants in common (TIC) you share the tax benefits, income and appreciation of the property on a pro rata basis, but that is depending on your particular share of the property.
Tenants in Common (TIC) benefits include:
Scope for an Investment into larger properties: The purchasing investment properties as tenants in common (TIC) allows you to invest in a much larger, institutional grade properties like warehouses, shopping centers, industrial property etc that cost a few million dollars or more.
Allow you to diversify your Real Estate Investment: Tenants in Common (TIC) gives you the opportunity to diversify your real estate investment as it allows you to invest in much larger properties, along with the smaller properties in which anybody would invest. This would be highly effective in increasing the value and security of your real estate investments. This in turn can help you diversify across different types and sizes of real estate investments as well as geographic markets.
Gives you a potential Increase in your Net Cash Flow: Ownership as Tenants in Common (TIC) gives you the chance to increase your potential cash flow, and also providing you with tax write-offs and property appreciation benefits. This is accomplished without the time commitment of active property management that would otherwise be required, if you were the sole owner of the property. Like any real estate investment it can potentially give you appreciation, all without the time commitments of active property management.
Can give you Help from the Nation’s Leading Real Estate Companies: Some of the biggest real estate companies (in the USA) source investment properties and garner a fixed rate, non-recourse financing with institutional terms for Tenants In Common (TIC) owners. With a TIC property investment, you can also gain access to carefully selected, national real estate companies, who seek the investment properties for you.
Provides Extensive Due Diligence: As a real estate company, the lender and the security company conducts extensive due diligence on the investment properties offered to Tenants in Common (TIC). The time and resources necessary are usually provided in a scale far greater than most individual investors are capable of.
Elimination of Day-to-Day Property Management Headaches : (TIC) investment properties employ a professional property and asset management team, allowing (TIC) investors to enjoy the benefits of real estate ownership, without the day-to-day property management headaches. This can be both a benefit and a risk.
It is often hard in the short 45-day period to locate a property that contains the right purchase price, debt ratio, and closing schedule to meet the 1031 Exchange requirements, and then arrange the necessary financing, so a TIC is good solution to this problem.
The main force driving the Tenant-In-Common (TIC) business now is the 80 million Baby Boomers that have built wealth in real estate and must now move from their hands on ‘heavy lifting’ investments to passive, institutionally managed, investment grade products. This is not only for themselves in their retirement, but it is also to move to tax deferred wealth for the next generation and beyond. Trillions and trillions of dollars in wealth will transfer over the next 10 to 30 years to the next generation, and that will (in-turn) drive the TIC business. We are going to see an influx of cash flow in the 1031 business nationally as a general derivative to market conditions today.
When you have people who have built wealth in real estate for the past 30 years and when they are ready to sell - they sell. It would not matter if it’s 90 or 80 cents on the dollar relative to last year. They need to prepare for estate planning purposes and the TIC investment offers a flexible cost deficient way to transfer wealth and avoid paying taxes, in a timely fashion.
Tenants in Common T.I.C. Financing | Risks Associated with T.I.C. Investing | What is a Master Lease? | What is a Triple Net Lease?
Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.
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