The Benefits of a 1031 Tenant in Common Exchange

A Tenant in Common 1031 Exchange, a (TIC), allows the owner of investment, business or income producing property to exchange it for a fractional ownership in another large commercial property or multiple industrial grade properties. When the IRS requirements for this type of exchange are followed, capital gains and depreciation recapture taxes may be deferred. A Tenant in Common investment offers the possibility for cash flow while freeing the owners of property management headaches.

13 Benefits of a 1031 Tenant in Common Investment:

1. Upgrade your present investment into institutional grade commercial real estate
2. Defer 100% of capital gains tax and depreciation taxes
3. Professional property management
4. Diversify an investment portfolio
5. Potentially increase cash flow from the investment
6. Cash flow from properties may be partially sheltered due to a new depreciation schedule.
7. Diversify real estate holdings over several geographic markets
8. Diversify real estate ownership in several different asset classes (hotels, office buildings, apartment buildings, industrial complexes, etc.)
9. Gain the potential for long-term high quality leases with tenants such as government entities, Fortune 500 companies
10. Ease of acquisition of the Replacement Property within the IRS required 45 Day period. The investor can take advantage of due diligence that has been completed on property offerings of TIC sponsors .
11. Investor may benefit from appreciation of the Replacement Property if it is sold.
12. A TIC is a valuable estate planning tool as it can be willed to heirs.
13. Heirs receive the potential for a stepped up basis upon the TIC owner’s demise.

Risks of the TIC Exchange

As with any investment in real estate, there are risks associated with TIC ownership, including fluctuations in the real estate market that may impact the value of the property. The following risks may also be associated with investment: illiquidity, economic risks due to vacancy rates, default if unable to pay mortgage and possible loss of principal. TIC ownership requires unanimous approval to take major action, such as a re-finance or sale. Obtaining unanimity may be difficult when 10 or 20 investors are involved. It is not possible to address all relevant risk factors in this forum. Risk factors are outlined in the Private Placement Memorandum for each offering. Investors should thoroughly understand all risk factors and discuss them with their financial representative prior to investing in a 1031/TIC offering.

The investor who is considering a 1031 Tenant in Common Exchange should evaluate possible Replacement Properties prior to closing on the sale of his present real estate holding. A 1031 TIC Exchange presents an opportunity to expand your investment portfolio, potentially improve cash flow, and should not be overlooked.

Photo Credit: Chris Gin

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The Benefits of a 1031 Tenant in Common Exchange