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TIC Investments: Fractionalized, But Not Fractured

By
Services for Real Estate Pros with Exeter 1031 Exchange Services, LLC President & CEO

This is my fourth and final post regarding tenant-in-common investment properties.  TIC investment properties can be great like-kind replacement property solutions for investors' 1031 exchange transactions.  I say "can be" because TIC interests are not suitable for everyone. 

Investors must do their own due diligence, read the Private Placement Memorandums very carefully, must ask lots of questions of the TIC Brokers, the TIC Sponsors, their own legal, tax and financial advisors.  TICs are not something that anyone should jump into without careful evaluation.

The real estate and capital debt markets have changed considerably over the past 18 months, which have affected the TIC investment products as well.  I participated as an Expert in a Round Table on TIC Investments entitled "Fractionalized; but not Fractured" for the California Real Estate Journal and thought it would be a good link to complete my four part post on TIC investments: http://www.exeterco.com/pdfs/California_RE_Journal_TIC_roundtable_2006.pdf

You can also access many different articles and publications in our Exeter 1031 Exchange Resource Library at http://www.exeterco.com/EEL_ArticlesPublicationTechnicalReference.aspx.

 

 

Randy Bolton
None - Diamond Bar, CA

I will be reading all of your posts over the next week.  I have just joined the group.  I want to know if you receive an actual deed as a TIC investor.  Most investors I talk to are not interested in owning shares of someoene elses LLC.  Investors typically don't feel secure with shares of someone elses business.  They want a deed with their name on it.

 

Jan 31, 2008 07:25 AM
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Good question. 

Yes, these TIC investments are actual direct ownership positions in the actual real estate. 

The TIC investor will be on the recorded deed and will be on the title insurance policy as a tenant-in-common owner.  These TIC investments are not permitted to be structured as a partnership (see Revenue Procedure 2002-22).  The interests must be structured as individual interests in real property in order to qualify for tax-deferred exchange treatment under Section 1031. 

Does that help?

Jan 31, 2008 08:11 AM
Randy Bolton
None - Diamond Bar, CA

Yes.  It does help.  My friend runs a hedge fund in Thailand.  They raise tens of millions of dollars to buy commercial property all around the world.  We are actually planning to create a TIC corporation.  Gee, I know that's going to be a monster undertaking, but the thing is, we have accredited investors we've worked with before that are chomping at the bit for more commercial investments.  I know there are also thousands of landlords that are getting peanuts in rents, and if proposed correctly, they would trade all of it for a better more solid investment - with less headaches.

Thank you for your help!!

He told me a Thai citizen can be on a deed of American property, even though they do not have citizenship in the U.S.    These of course would be cash transactions, not exchanges.  As a Financial Advisor, I'm wondering how anti-money laundering and the Patriot Act fall into all of this.  I have a lot to study.

Jan 31, 2008 11:18 AM
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Randy,

International investors always pose challenges.  They can obtain a U.S. taxpayer I.D. number that will help alleviate some of the headaches. 

The Patriot Act will apply, so I would speak directly with the title insurance company and/or escrow company that you will be working with to obtain their procedures and requirements in order to comply with the Patriot Act. 

Foreign investors must also comply with FIRPTA when they sell property, so I would review FIRPTA before getting into a commercial property so that you know what will be involved on the back end.  This can help in planning the investment. 

Jan 31, 2008 01:42 PM