Exchanging into a Tenants-in-Common and/or Energy Property instead of a
single-property purchase may offer attractive ownership advantages. These
exchange property types offer the opportunity to benefits including hands-off
property management, the potential for steady monthly cash flow, and the ability
to easily diversify real estate investment holdings across the country.
- Investing in TIC Properties
- Oil and Gas Opportunities
The founders of ExchangeWorks have assisted numerous investors with 1031 TIC and
Energy Property exchanges. We have expertise in matching the right replacement
property with the investors goals and are highly educated in analyzing and
evaluating potential replacement properties for TIC investors. We look forward
to educating each investor, so clients can make an informed decision on how TICS
and/or Energy Property can be an appropriate investment vehicle for their
specific situation.
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Investing in TIC Properties
Tenants-in-Common is simply a way of holding title to a property. It is a
co-ownership structure under which an investor owns an undivided fractional
interest in an entire property and participates in a proportionate share of the
net income, tax shelters, and growth. A TIC investor receives a separate deed
and title insurance for his or her percentage interest in the property and has
all the privileges as a single owner. TIC ownership is a popular choice among
real estate investors seeking replacement property for their tax deferred
exchange.
TIC Advantages
Invest in large
institutional-grade properties
Purchasing a TIC investment property enables investors to
participate in the type of investments that would attract institutions such as
REITS, pension funds, insurance companies, and large corporations. For example,
instead of owning a single-family rental home, you could own an interest in a
300 unit multiple-family housing complex, or a high rise office leased to a
fortune 500 company.
Diversification
Due to smaller investment requirements, TIC interests allow investors to diversify their
portfolio into various property types in multiple locations all across the
country.
Increase of Monthly Cash Flow
TIC Investors can potentially increase their monthly cash flow, as ownership in investment-grade
real estate can provide higher returns than typical property ownership.
Further, TIC investors participate in all of the risks and rewards as
traditional ownership, including tax sheltering due to depreciation.
Reserve Accounts
A portion of the propertys monthly income
is reserved for large upcoming expenses. Potential capital improvements,
leasing commissions, and tenant improvement costs are all budgeted in the
proforma. This reduces and many times eliminates the unexpected expenses that
can be part of traditional property ownership.
Freedom
TIC properties are managed by national real estate firms that specialize in
professional property and asset management. Investors participate as passive
owners, and are not involved in day-to-day management headaches and decisions.
Due Diligence
At ExchangeWorks, we carefully scrutinize each
TIC investment, evaluating every aspect of the investment, including the
property, the geographical location, the sponsor, use of leverage, and the
investment structure
TIC RISKS
Real Estate Markets
The real estate market is cyclical. Results from investing in TICs may vary throughout
economic and real estate cycles.
Direct Investments
TIC ownership is a direct investment in real estate, and as such, is subject to risks typical of owning operating and selling real estate. There are also additional risks relating to the structure of TIC investments. These risks include:
- Lack of liquidity: Due to TIC structure and lender requirements, it is very difficult to sell the interests individually. There are high costs to sell TICs early, and there is no public or active secondary market. Investors interested in participating in a TIC property should consider the real estate a long term investment without liquidity (the ability to convert the investment to cash).
- Decrease in property value/Loss of capital: Real estate markets are cyclical. Property values can decrease, and investors may have to sell the property at an inopportune time.
- Loss of management rights: TIC properties are professionally managed by 3rd party management firms. Although this is a benefit of investing in a tenant-in-common property, it is important to note that investors are subject to all risks of utilizing 3rd party management firms and relinquishing management rights.
- Tax risks: Although TICs are structured to comply with Revenue Procedure 2002-22 in relation to IRC Code 1031, investors should consult their own tax advisor in regards to tax code compliance. Investors should also note that tax codes are subject to change.
Costs of the TIC Structure
The cost to purchase a TIC
may be more expensive than purchasing a sole ownership property, due to the
costs of structuring the investment.
If you would like more information on investing in tenants-in-common,
give us a call.
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