1031 Exchange and Tenancy-in-Common – Finding the Right Advisor to Achieve TIC’s Investment Goals
Windowofworld.com – A long-established section of the federal tax code, section 1031 exchange, allows real estate investors to sell property they already have for investment purposes and defer capital gains and tax depreciation returns if they acquire “like” exchange property of equal or greater value. and reinvesting all of their equity.
Since the mid-1990s, many investors have benefited from reinvesting their equity in property investments structured as Tenancy-in-Common (TIC). The owner of the TIC holds fractional ownership that is not divided in the investment property as evidenced by a trust deed.
A TIC, also known as a Real Estate Co-Ownership (CORE), allows investors to participate in professionally managed institutional-level ownership of investment properties. Investor equity can be diversified among different properties, geographic markets and real estate companies, which has the potential to increase the value and security of real estate investments. TIC / CORE Investments are designed to offer capital maintenance, predictable cash flow and long-term appreciation in institutional quality investment property assets that benefit from larger economies of scale.
With its features and benefits, TIC / CORE is an increasingly popular 1031 exchange option for many real estate investors. However, the 1031 TIC / CORE exchanges and transactions are extremely complex, with tax and legal issues topping the list of potential pitfalls. It is therefore important for investors to have some knowledge of what to look for in a qualified advisor. Financial advisors are required by securities law to hold the appropriate license to consult with clients regarding TIC / CORE transactions and other investment interests in real estate. Financial advisors must have a Series 7 and Series 63 securities license to qualify them as knowledgeable and knowledgeable consultants in the investment process. It is important for them to have experience in the commercial real estate business, as well as an understanding of personal investment objectives and client suitability issues.
But perhaps the most important component to look for in a TIC financial advisor is their close, trusted and deeply rooted relationship with a major real estate company. These attributes are very important to their ability to provide the best opportunities for their clients. There are nearly 80 real estate companies throughout the United States
Countries that are already involved or considering involvement in the TIC / CORE industry as real estate providers. As with any industry, these 80 companies represent different levels of intelligence, experience and quality. To reach the greatest potential for clients, financial advisors must have consistent access to the top ten percent of these companies to provide their clients with access to the best properties available. Obviously, new financial advisors with little or no industry experience or knowledge may not have access to top real estate providers, as these providers prefer to work with experienced consultants who specialize in this unique market segment.
Investors should also be aware of how their financial advisors stack up, looking for a history of successful transactions. A long and proven track record shows that financial advisors are experienced professionals. An investor wants such an advisor in their corner asking all the right questions, making appropriate and appropriate recommendations, understanding the nuances of successfully completing a TIC / CORE transaction and providing answers to any and all tax and legal questions.
When considering a 1031 exchange or a TIC / CORE investment, investors should ask a financial advisor the following specific questions:
* What percentage of your business is linked to 1031 exchanges and / or TIC / CORE?
* How many investors you consulted invested in TIC / CORE structured properties this year? How many years ago
* How long will 1031 exchanges and TIC / CORE be the focus of your investment recommendation?
* Do you have the appropriate license to complete this transaction (Series 7, Series 63 securities license)?
* Which real estate provider do you work most closely with?
As customer demand continues to drive this segment of the real estate market, emphasis on quality – quality consulting, quality properties and quality transactions – will become increasingly important. Part of the qualitative process is to ensure that the financial advisor representing the client makes appropriate recommendations for the client based on the client’s best interests and not on “bias”. A final issue that needs to be addressed is that “referral” compensation must be paid between the referring parties. This practice is illegal and completely violates ethics. Therefore, if any form of compensation changes hands – disclosed or withheld – between a financial advisor and a Qualified Intermediary, real estate company or other unlicensed individual resulting from an exchange transaction, criminal offenses may have occurred.
In short, investors should take the time to identify reputable advisors who can not only provide acceptable answers to the above questions, but will also have the necessary relationships to guide their clients into appropriate investments. It is important to remember, companies or individuals involved in recommending, offering or selling 1031 TIC / CORE investments must be licensed with broker-dealers, SEC, NASD and state securities regulators in each state where the company or individual operates. and where the client is located. Any “unlicensed” company or individual involved in recommending, offering or selling this investment is in direct violation of federal and state securities laws.
Co-ownership is the fastest growing option for 1,031 exchange investors looking for suitable replacement properties. Properly structured and presented, such investments can also generate new listing opportunities for real estate agents while meeting the requirements of the IRS “like” investment property and SEC and NASD securities regulations. The advantages of co-ownership of institutional-level real estate are clear and attractive. When exploring co-ownership, savvy investors need to find industry experts to guide them through the property replacement process. Indeed the wise investor who realizes his long-term goals is seeking experienced guides to chart their direction, turning TIC / CORE investment opportunities into reality.