TIC’s: A Valuable Option for Investors
| Read comments | Add comment / Rate this Article | Article by: Damon Luke |
Tenants In Common (TIC) Structure:
Tenant-in-common is a form of fee simple real estate ownership dating back hundreds of years, whereby two or more individuals own a fractional share of a whole piece of property, and the release of Revenue Procedure 2002-22 in March of 2002 by the Internal Revenue Service set forth a series of guidelines which would allow the investor to confidently purchase “like kind” replacement property when completing a 1031 exchange.
- Eliminate day to day management responsibilities
- Defer capital gains and recapture tax, continue to depreciate TIC property and shelter income
- Direct ownership of high quality institutional/commercial properties
- Diversify across different types of properties in diverse geographical regions
- Increase monthly income from your investment properties
- Property value appreciation potential
- Investors who prefer to be free from day to day management duties and are seeking to eliminate the Terrible T’s (Tenants, Toilets, Trash and Turnover)
- Investors seeking a lifestyle change who seek the enjoyment of life and accumulated wealth or just spending more time with their family
- Investors who have investment real estate that is not producing sufficient income due to the type of asset or because of self-management
Do Your Homework – What To Look For:
When making a decision to purchase an income producing property, of course you want to evaluate all of the factors contributing to the attractiveness of the asset and assess the risks of the investment, and it is widely understood that most investors would benefit from having a real estate professional assisting them to make an informed decision.
The key to successfully projecting the future cash flow of a property is to evaluate the underlying property assumptions such as the vacancy rate, lease terms and renewals, rental increases and the reserves set aside to pay for capital expenditures and leasing costs, etc. Would it make sense to purchase a property that shows a 3% vacancy rate for a market with an average 9% vacancy rate? Why would you purchase a property that shows 100% of the tenants renewing their leases when you know that there will be some tenants leaving? Are the rental increases in line with the leases the tenants have signed and more importantly are the rents at, above or below the average for the market area? Make sure to look very close at the reserves set aside to pay for future expenses associated with the property. This is done to ensure that you do not incur any out of pocket expenses in the future. If the company is not accurately determining the real future costs of maintaining the property, you may be asked to pay for those expenses out of your pocket.
Investing in Tenants In Common property is a valuable option for investors moving equity from one property to another or looking for high quality deeded real estate, but it is not your only choice. Make certain that you do your homework, get the help of your real estate agent/broker, and ask plenty of questions before deciding which option makes the most sense for you, your family and your long term investment objectives.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
