Risks Associated with TIC Investing - Tenant-in-Common
The "Risks" of Investing in a Tenant In Common (TIC) structured property include:
Similar to all real estate investment, there is risk in 1031 Exchanges and TIC investments. Investors should carefully review offering materials related to a TIC investment as those materials will contain significant risk disclosures and specific information about the property. Interests in real estate could possibly be about the property. Interests in real estate may be speculative and may involve a high degree of risk; investors should be able to bear the loss of part or all of their investment. Some TIC interests are subject to recourse liability, i.e., the investor may be responsible for providing any cash that is needed in the future in association with the property.
There are some restrictions on transferring TIC interests; these are not liquid investments. There are numerous important tax risks and tax issues involved with the purchase of a TIC interest; investors should consult their own tax advisors and legal counsel. The direct or indirect purchase of real property involves significant risks, including market risk and property specific risk. The purchase of real property with other investor, e.g., as a tenant in common, presents risks in association with the relationship with those other investors. TIC investments are often leveraged; leverage may increase volatility and may increase the risk of investment loss. The manager has broad authority and supervision over the property and the terms of financing. The various fees paid to the manager and its affiliates in a TIC investment are significant and may offset profits related to the ownership and operation of the real estate.
In addition, there is no guarantee that cash distributions will continue, that a particular property’s business plan will be successfully executed, that the property’s value will be enhanced or the property will be sold within the planned time period. In other words, past performance is no guarantee of future results.
The Potential for Property Value to Decrease: All real estate investments have the potential to lose value during the life of the investment. This is true of any investment especially Real Estate.
The change of Tax Status: The income stream and depreciation schedule for any investment property may affect the income bracket and/or tax status of the owner of the property. An unfavorable tax ruling may potential cancel the deferral of the capital gains.
Potential for Foreclosure: Any and all financed real estate investments have the potential for the possibility of foreclosure. However, the many layers of due diligence performed on each (TIC) property by the real estate provider, lender, and the securities industry, can help alleviate some of the foreclosure risk.
Potential for having an illiquid investment : Most Real estate can be an illiquid asset, and (TIC) investments are no different. There is currently no secondary market for (TIC) investments at this time. All (TIC) properties usually have business plans, ranging from three to ten years in length. Some properties receive offers, of which the co-owners vote on, in advance of the completion of the business plan.
The Reduction or Elimination of Monthly Cash Flow Distributions: Just like any other investment in real estate, if a (TIC) property unexpectedly loses tenants or sustains substantial damage, there is potential for a suspension of current, cash flow distributions or rent. The (TIC) business plan, professional property management, and asset management, are attempted safeguards against possible cash flow disruption.
The Impact of Fees and/or Expenses: Just Like any investment real estate, additional costs associated with the transaction may impact returns for the investor, and it may even outweigh the tax benefits of the 1031 exchange procedure.
The Loss of Management Control: (TIC) properties, in general, employ professional asset and property management. So while (TIC) co-owners vote on major issues , such as selling the property, they do not have the direct say over the day-to-day property management situations. This can be considered both a benefit and a risk.
TIC - Tenant-in-Common - Benefits of Investing in TIC's | Tenants in Common T.I.C. Financing
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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