I am pleased to announce the addition of a relatively recent (2002), little-known and rapidly growing real estate service to my real estate brokerage services. I am one of the very, very few (almost unique) Realtors that offer this service.

This new service guides owners of investment and business property through the process of transitioning from the problems of active ownership and management of real estate into passive ownership of higher quality real estate. In essence, exchanging the problems and time involved in your existing investment/business property for a monthly check with no time or ownership/management hassles AND without payment of taxes in exchanging properties. This process provides a turn-key solution to often vexing problems of property management and property exchanges.

WHAT IS THIS?

It is a combination of an IRS approved tax-deferred property exchange program (known as an IRS Section 1031 tax-deferred, non-simultaneous exchange) AND a prepackaged, directly-owned, passive replacement property ownership structure called a "Tenant-in-Common" ("TIC") ownership structure. The TIC is a group ownership format that the IRS allows to be used as a replacement property in a 1031 exchange IF 15 separate IRS mandated requirements are met.

There are several problems involved in a non-TIC real estate exchange. They are: finding an appropriate replacement property within the IRS  time constraints, arranging and timing financing, lack of an efficient "due diligence" process on the replacement property, managing a new property or securing outside management and limitations to the quality of the replacement property, to mention most of them.

HOW DOES THE TIC SOLVE THESE PROBLEMS?

The TIC is created by professional real estate firms called "sponsors", who purchase a property, arrange for non-recourse financing and package it for purchase by up to 35 separate investors ("co-owners"). The sponsor also arranges for property management and provides the due diligence information by which the prospective investor can make an informed purchase. Many of these sponsors maintain nationwide acquisition teams who not only look for appropriate property and property-type purchases, but also identify those geographic areas which are most likely to experience economic growth. Also, many, if not most of the sponsors (and there are some 80 to 100 sponsors in the TIC business) deal with "institutional" (high) quality real estate, which greatly expands the universe of potential purchasers when it comes time to sell the TIC property.

WHO WOULD BE A CANDIDATE FOR THIS 1031/TIC PROCESS?

Candidates for the 1031/TIC process generally fall into one or more of the following categories:

·        One who has owned the investment/business property for some time and is tired of devoting the time and energy necessary to own and manage the property(s), yet does not want to pay the capital gains taxes that would be due if the property(s) were sold ."PAY TAXES LATER!"

·        The owner feels that property value growth has topped-out.

·        The area where the property is located is starting to deteriorate.

·        Depreciation is largely used up.

·        One is going out of business and does not want to stay involved with the business property.

·        The property has a low cash flow relative to its market value.

·        You have all your real estate eggs in one property-type and/or one geographic area and want to diversify your holdings in one or both of those categories.

WHAT ARE THE BENEFITS OF A TIC?

·        A turn-key solution to the problems of finding an appropriate replacement property in a 1031 exchange.

·        A direct ownership interest. Each investor/co-owner is on the deed as to the percent of her/his, "undivided interest" in the property

·        The TIC is not taxed.

·        Management-free.

·        Can accommodate different sized investments.

·        Financing is non-recourse to the investor.

·        Institutional quality property.

·        Diversification by property-type, geographic location and sponsor.

·        Properties in higher growth areas.

·        Investors have veto powers over sale, leasing and financing.

·        Transparency. There can be no disproportionate allocations of anything.

·        The sponsor cannot maintain an interest in the profits of the TIC property.

I am also pleased to announce my cooperation with Ron Ringlien, Principal of New Cycle Financial of Seal Beach, CA to enable me to access the entire spectrum of TIC sponsors. Ron specializes in TICs and has long experience on the sponsor side of the table as well as many years in working on the client side in the design and implementation of investment portfolios, Ron is a 30 year real estate broker and a fully licensed securities representative. If you have Section 1031 or TIC questions, or just for a further discussion of the process, you can contact Ron directly at rcringlien@attglobal.net or 562-430-3796.

"TIC TRACKS" is a series of periodic articles for professional advisors to provide information about Tenant-in-Common ("TIC") real estate investment structures.  This information is for advisory use only, is purely educational and not to be taken as either tax or investment advice.