The
ability to complete a 1031 exchange may create significant tax advantages
for investors, however the inability to close on a replacement property
may cause adverse tax consequences as well. One
option that is now open to qualified investors is to complete a
1031 exchange into a fractional interest (called a TIC) in an institutional
quality property. An investment into a stabilized core
asset with no management responsibilities may be a good solution
for accredited individuals looking to complete a 1031 exchange.
The benefits of a TIC investment
include:
> Deferral of capital gains and depreciation recapture
tax.
> Ability to own a fractional interest in a trophy asset.
> Potential monthly or quarterly cash flow.
> Freedom to work with many different nationally respected real
estate providers to find the best property for you
> No hassle, easy closing. The financing is in place, survey
and third party diagnostic reports are already completed and property
management is provided.
> Upon sale of the property you aren’t tied to the other
investors like in a partnership - you are free to do another 1031
exchange or cash out.
The
risks of a TIC investment include:
> Purchasers will be required to rely on a third
party manager to operate the property purchased.
>The sponsors and manager of the real estate purchased may have
conflicts of interest that can adversely affect an investor.
> TIC interests are generally illiquid.
>Tenants can default, which may reduce cash flow to investors.
>The selling prices for properties often are not the result of
arms length negotiations.
>TIC interests are not diversified, so investors are more exposed
to risk of decline in real estate values of a single building, a
single type of building, or a single geographical area.
*Always consult with your
tax advisor before making any investment related decisions.
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| A
TIC investment is a fractional interest in an institutional
grade property. |
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