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.

Securities offered through Pacific West Securities, Inc. Member FINRA/SIPC

Photo Credit: Chris Gin

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Tags: 1031, 1031 exchange, investment real estate, real estate, real estate investing, Tenant in Common, TIC

You want to rehab houses, but where do you start? We see the fix-and-flip “reality” shows that, somehow, manage to have no basis in reality. How hard can it be to buy a house, rehab it, sell it, and retire to a life of luxury on the French Riviera? On TV, it all happens in thirty or sixty minutes. Easy, right?

Before you start it is imperative to have your own financial house in order (See last week’s article. ). Jumping into rehab without a solid foundation will make it very difficult, if not impossible, to succeed.

Choose Your Weapon

Rehabs fall into three basic categories: personal use, rental, or flip. Each type carries a different level of risk. My recommendation for most people is to start by rehabbing a house for their own personal use. It carries the least amount of risk since you will not have the added carrying cost of a second property. If you live in the house while you are renovating it, you just have your regular living expenses.

There are other advantages to living is a house while rehabbing it. You do not have the same time pressure. When you are rehabbing a property with the intention of flipping it, you are losing a little piece of your profit everyday. Holding costs are a ticking clock, time is money. When you experience a delay, you lose money. If the market makes a quick sale difficult, you lose money. The risks associated with flipping are enormous. The current real estate market conditions just make it worse.

Make It Your Own

When you are renovating a house with the intention of flipping, you need to keep the end user in mind. This usually means making conservative choices that will appeal to the widest number of potential buyers. If the house is going to be your residence you have the ability to incorporate your own personal taste. If you want purple walls with a pink ceiling, then go for it. Rehabbing a house for your own use allows you to create a home that fits the way you live.

You still need to keep resale in mind if you have any intention of selling in the near future. Determine what you resale timeframe might be and work with that in mind. If it is going to be a long-term hold you should do whatever makes you happy and fits your lifestyle.

Learn As You Go

No matter how much you study and prepare, first time rehabbers will make a lot of mistakes. It’s much easier to learn from those mistakes if you are not under the constant pressure of having to complete a flip. My first rehab was a major learning experience. I had the luxury of time. I was able to take the lessons learned and carry that knowledge forward into future projects. If that first rehab was intended to be a flip I would have lost a lot of money and it probably would have been my last project.

Instead of trying to earn a bazzillion dollars on your first deal, look for one that can propel you to future success. Start small and keep the project within your ability. With each success you can move into bigger and tougher projects. As your ability grows, your profits will increase and your profits will soar.

Happy rehabbing!

I honestly think it is better to be a failure at something you love than to be a success at something you hate. - George Burns

rehab, houses, flip, rehabbing, renovating, home

Tags: flipping, investment real estate, Rehabbing