The Bill directs the Securities and Exchange Commission (SEC) to make an important change to the "Accredited Investor" definition under Rule 501 of Regulation D. This change to the Accredited Investor definition or standard is effective immediately once President Obama signs HR 4173 into law.
The new definition of the Accredited Investor status is extremely important in the context of private placement offerings (PPMs), including Tenant-In-Common or TIC Investment Properties, since most of these TIC Investment Property offerings are limited to Accredited Investors in order to qualify for certain offering registration exemptions with the Securities and Exchange Commission (SEC).
Investors satisfied the "Accredited Investor" definition prior to HR 4173 if the investor had a net worth exceeding one million dollars ($1 million), including the value of their primary residence (home). However, the investor's net worth requirement must now be computed without (excluding) the value of their primary residence (home).
There are other provisions for meeting the "Accredited Investor" status, including income test requirements. HR 4713 does not change the annual income test for investors, but it does require the Securities and Exchange Commission (SEC) to analyze the "Accredited Investor" definition at least every four years.
]]>It dawned on me that a concise overview of the differences would be a great post for our blog, so here is a brief overview for the novice investor to help them understand the basic differences between the various investment options that are available for them, including:
The most common option for most investors is to buy and hold their own property. You work with a real estate agent or broker that specializes in the area and type of property that you are interested in and acquire your own property. You must do your own due diligence and make your own decisions regarding the purchase, so make sure that you have done your homework before you buy. A good real estate agent that has a lot of experience with investment real estate can go a long way.
The novice real estate investor should probably start with smaller rental property such as a single family residence (SFR) or dupex, triplex, or fourplex, until they have more experience with investment real estate. Four units or less is not considered commercial investment property and borrowing is much easier.
You have complete responsibility for the property management, including, collecting the rents, paying the bills, etc. There is no minimum investment; it just depends on what you decide to buy.
Tenant-in-common investment properties or TICs tend to be much larger commercial properties. They can consist of an office building, industrial building, retail property such as a mall, large apartment complexes, student housing project, hotel such as a Courtyard by Marriott, and so forth.
Generally the commercial property is valued well over $10 million, which is why you buy into a fractional interest. It gives those of us that can not afford the $10 million plus price tag individually a way to invest in large commercial properties by buying in with other investors.
The property management is all arranged in advance through a commercial property manager, so you do not have any property management responsibilities. You merely collect your monthly cash flow.
The minimum investment amount can range from $25,000.00 to over $1,000,000.00. The average minimum is $200,000 to $400,000 for most TIC investments. The cash-on-cash return is based on the amount of equity that you invest in the TIC, so if you invest $500,000 into TICs the 6% to 8% returns, which are after expenses and debt service, would be calculated on the $500,000.00 and not the gross amount or puchase price.
TIC investments also provide you with a great way to diversify your investment portfolio. You can place $500,000 into two (2) different TICs instead of just one property. You can diversify by asset class (type of commercial real estate) and by location. It allows you to spread your risk around better than if you invested in your own properties.
These are also large commercial properties, but they are not sold on a fractional interest basis. One investor generally buys the entire investment property and then leases the property on a triple net lease basis to a single tenant like Walgreens, CVS Pharmacy, fast food franchise, Starbucks, and the like.
The property is managed by the tenant since it is a triple net lease property. You have no property management worries. You merely collect your net rent check each month.
The minimum investment amounts are much higher for NNNs since there is only one investor/owner. The cash-on-cash return is generally a little less than TICs because these are also a little safe (less risk) than TICs.
You can certainly sell multiple properties and 1031 exchange into one NNN property, and because you own 100% of the triple net lease property you have complete control over the decisions to buy, sell, refinance and leasing.
You must remember that all of the above investments are real estate investments and will bear all of the inherent risks associated with real estate ownership, including drop in value, maintenance, deferred maintenance, capital improvements, cash calls if cash flow drops significantly, ability or inability to refinance depending on the capital, credit and real estate markets, etc.
Read Overview of Tenant In Common Investment Properties Interests, including links to other articles, for more complete information regarding the risks involved with TIC investments.
Always assemble your real estate team before proceeding. The one largest mistake that beginners always seem to make is not spend money on advisors when they should. Advisors can keep you out of trouble and is money well spent.
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Tax Deferral and Replacement Property Solutions
in a 1031 Exchange
Wednesday, September 17, 2008
9:00am - 12:00pm
Holiday Inn Long Beach Airport
2640 N. Lakewood Blvd.
Long Beach, CA 90815
This is an intermediate level discussion on Section 1031 Tax-Deferred Exchanges. The program will include the requirements, structures, processes, strategies, and compliance issues necessary to successfully complete a 1031 exchange, including a discussion of Tenant-In-Common (TIC) investment properties as 1031 exchange replacement property solutions. Click here to RSVP.
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Don Meredith
Concorde Exchange Group
If you are like many Southern Californians who own investment property, you may be facing a common dilemma. You'd like to cash in and make the most of your income property but you're not familiar with the alternatives available. Before you sell, it is critical to be aware of the obstacles and traps ahead so you can escape paying higher taxes while maximizing the returns on your real estate assets.
It is known that the rental market in Southern California has failed to keep up with the rapid appreciation of property values resulting in returns of one to three percent on equity and extremely low CAP rates upon sale. Today's real estate and financial experts have extensively researched the current Southern California market and want to let you know there is good news. Don Meredith of Concorde Exchange Group-Professional Asset Management states, "If you are looking to take advantage of the market at its peak while avoiding a large tax consequence, then a 1031 Exchange from apartments to commercial may be the perfect solution."
Meredith points out that there are four options, but the 1031 Exchange will offer the best return on your investment. Option 1: Pay the tax. Option 2: Transfer assets to a CRT (charitable remainder trust). Option 3: Exchange into an individually owned apartment or commercial property. Option 4: Exchange into an institutional class Tenant in Common (TIC) offer, backed with AAA rated tenants and institutional level property management.
Don Meredith explains, "In 2002 the IRS opened the door to a world of possibilities for owners looking to sell their appreciated property allowing for a 1031 Exchange by way of a TIC situation." A popular candidate for the TIC alternative is an income property owner seeking a change from active to passive real estate ownership, as well as looking to relieve themselves of tenants, headaches and management. A TIC allows you to go from owning 100 percent of your property to owning a certain percent of a much larger piece of real estate depending on the investment amount. This enables multiple owners to purchase larger and higher-quality properties with investment grade tenants, in turn, potentially greatly increasing their monthly income while putting trapped equity to work.
Meredith represents over 60 TIC Real Estate Companies. Generally TIC's are marketed as securities not real estate. Darryl Steinhause, Esq. Partner from Luce Foward Hamilton & Scripp quotes "The SEC defines TIC's as securities as does the State of California”. Meredith goes on to say, "In my opinion, the securities TIC's are the only way to go from a regulatory front and from the investors point of interest. There is complete transparency and more importantly often a 3rd party due diligence consultant and independent reviewer.
William L. Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC comments that "TIC’s help investors diversify their real estate investment portfolios where they otherwise could not. Investors are often concerned about the 45 day identification deadline. The TIC investment can significantly reduce the risk and stress involved with the 45 day period because the Investor can not only identify but in most cases actually close on the TIC investment during the 45 day period."
You can ask Mr. 1031 any questions you may have about 1031 exchanges, replacement property options by e-mailing him at meredth1@san.rr.com call him at 1-800-479-9299 or visit their website at http://www.donmeredith1031.com/ Ask about 1031 Workshop dates
]]>Real estate investors are always looking for new real estate investment ideas and concepts, especially given the difficult real estate market that we find ourselves in today. Please allow us to introduce a tenant-in-common investment property broker to you.
Mr. Jain has 18 plus years investment experience within the United States of America. Prior to working in the United States he was employed for 4 years in the country of India, where Mr. Jain worked with Reliance Industries in their Retail Marketing Division creating fabric showrooms and handling rinancial instruments, raising equity capital for the company.
He holds an MA in Economics from the University of Jabalpur (Now RD University) and a BA in Economics and Math, from St. Aloysius College. He was educated from Grade K through High School at one of the finest private catholic convent schools in India, St. Aloysius School, which is now 137 years old. His “Alma Mater's” motto was "VIRTUS ARDUO," which means “virtue in hard work”. Sid attended University of Georgia in the PHD Economics program, Athens, Georgia, initially in the USA. Later, in 1989, he transferred to an Ecumenical "Master in Religious Education" Program at Barry Town, New York for personal and spiritual enrichment.
Sid also participates in various inter-faith/cultural/rebuilding/community service programs on three Continents, including Asia, Europe and in the United States. On a local basis, Mr. Jain volunteers at a community center in the City of Sunnyvale and the local silicon valley real estate community.
Sid is a licensed and registered securities representative.
MoneyMallUSA Corporation was founded by Mr. Jain in 1999. Their registered Broker-Dealer is Emerson Equity, LLC, located in San Mateo, California. Sid Jain’s real estate broker is Mr. Joe Atab who is with First City Bancorp Mortgage, Inc. They are licensed, bonded and insured.
They have over ten years securities and real estate experience, including representing clients in the acquisition of tenant-in-common investment property offerings or TIC investments as replacement property solutions for their 1031 tax deferred exchange transactions.
They are regulated by Federal and state securities laws, including the SEC, FINRA (formerly NASD), state securities agencies, and through the Department of Real Estate in certain states. Sid Jain and/or MoneyMallUSA Corporation is a member of NASD (registered rep.), Member of California DRE (as salesperson), Member-Financial Planning Association, past member of NAIFA (National Association of Insurance and Financial Advisors), Member and Sponsor of COIAR (Council of Indian American Realtors), Member-CA Department of Corporations, Member, Nevada Department of Corporations, Member, Tenant In Common Association (TICA), Member, CA Apartment Association, and a member/contributor of numerous environmental, conservation, cultural, service and charitable organizations worldwide. MoneyMallUSA Corporation is a 1031 exchange, Tenant in Common (replacement) property* Broker.
You can reach them at (408) 836-3858 or sidjain@mymoneymall.com.
SID JAIN
President
MONEYMALLUSA CORPORATION
sidjain@mymoneymall.com
(408) 836-3858
There are many risk and/or disadvantages that should be addressed by any real estate investor that is contemplating investing in a TIC investment property. The following are just some of the issues that we thought should be mentioned.
The TIC investment property strategy is not appropriate for everyone and should always be reviewed by your legal, financial and tax advisors prior to making any investment decision.
]]>But, there are so many more benefits that should be discussed regarding tenant-in-common investment properties also known as TIC investment properties or just TICs for short.
One of the biggest challenges for a real estate investor completing a 1031 exchange is to locate, identify and acquire suitable like-kind replacement properties that provide good cash flow. Tenant-in-common investment properties often provide the real estate investor with a better like-kind replacement property alternative because of the increased cash flow opportunities.
Real estate investors often find they are only earning 1% to 3% on their current investment property. The actual return could be increased two or three times by completing a 1031 exchange into tenant-in-common investment property. The amount of potential cash flow is based on the equity or capital invested in the tenant-in-common investment property and is typically between 5% to 8% depending on the geographic area, asset type, and performance of the property.
Diversification is extremely important for any investment portfolio whether we are talking about stocks, bonds, mutual funds or investment real estate. Tenant-in-common investment properties allow the real estate investor to assemble a diversified real estate investment portfolio. The diversification can be accomplished on a number of different levels including quantity, asset class (property type), and geographic location.
Tenant-in-common investment real estate generally consists of class A or class B institutional quality commercial real estate valued between $10 to $100 million. Tenant-in-common investment property offerings allow real estate investors to acquire undivided fractional interests in these institutional quality investment properties that they would most likely not have access to otherwise.
You have most likely heard the phrase the "Terrible "Ts." The Terrible "Ts" refers to the headaches of owning and managing investment real estate. It includes headaches such as tenants, taxes, trash, toilets, teenagers, toddlers, and more. Tenant-in-common investment properties eliminates many of these headaches because they have professional, institutional investment property managers in place to address all of the day-to-day property management isuses. Real estate investors that are tired and fed up with the day-to-day headaches of investment real property management will appreciate the benefits of tenant-in-common investment property ownership.
Asset managers are generally in place in most tenant-in-common investment property offerings. The asset manager is responsible for ensuring the property is being put to its best use, changes are made when needed to enhance the properties value, including when to sell and 1031 exchange into other investment property.
Real estate investment companies that are often referred to as sponsors or syndicators structure these tenant-in-common investment property offerings. The sponsors are responsible for the due diligence, acquisition, financing, property and asset management and ultimate disposition of the tenant-in-common investment real estate.
The minimum investment requirement for tenant-in-common investment properties is generally between $100,000 and $300,000, but depends on the size of the tenant-in-common investment property offering. The low minimum investment requirements allows real estate investors to really diversify their investment real estate portfolios by selling one relinquished property and subsequently acquriring multiple tenant-in-common investment properties.
TIC Sponsors or TIC Syndicators generally arrange for the TIC investment property financing upfront, which is typically non-recourse to the real estate investors. Non-recourse debt means that the lender can not go after the real estate investor's personal assets should there be a default on the debt. The lender can only go after the subject property that was financed.
It is not easy for real estate investors to locate, identify and acquire suitable like-kind replacement property within the required 1031 exchange deadlines and still perform a good and thorough due diligence on the target property. The TIC Sponsors or TIC Syndicators perform a very thorough due diligence on the TIC investment properties, and the TIC lenders also perform their own thorough due diligence of the TIC investment property well before the TIC investment offering is brought to the market. So, there is generally quite an inventory of tenant-in-common investment properties on the market and ready for purchase at any one point in time so that real estate investors always have plenty of TIC investment properties to choose from when they are with in their 45 day identification period.
Real estate investors can usually not only identify tenant-in-common investment properties within the 45 day identification period, but they can usually close on the TIC investment property during the 45 day ID period as well. This significantly reduces the real estate investors risk related to the 45 day ID period and whether they can locate and identify property in time.
TIC investment property offerings provide significant levels of disclosure information through the distribution of Private Placement Memorandums or PPMs. The PPMs include all the details of the TIC investment property offering including the appraisal, financial, lease summaries, legal opinion and any negative impacts such as environmental issues.
These are just some of the benefits of investing in TIC investment property offerings. You should sit down with a TIC investment property broker and discuss the various pros and cons of TIC investing and then have your legal, financial and tax advisors review before investing in any specific TIC investment property offering.
]]>We often hear real estate investors express frustration when structuring their 1031 exchanges that it is very difficult to locate, identify and ultimately acquire suitable like-kind replacement investment properties within the challenging 1031 exchange due dates. This has always been a challenge for real estate investors, especially given the tight time constraints required by the 1031 exchange.
All too often we see real estate investors rush into the purchase of a like-kind replacement investment property that is not suitable for their real estate investment goals and objectives when faced with difficult 1031 exchange due dates. Real estate investors need to walk, not run, when evaluating specific real estate investment properties. They should carefully evaluate the economics of each real property to make sure that it will in deed make a suitable investment property to add to their real estate investment portfolio.
The income tax benefits derived from structuring a 1031 exchange transaction should be a very important part of the analysis process, but the financial and economic aspects of a particular like-kind replacement investment property should not be ignored simply due to the 1031 exchagne due dates. The economics of the like-kind replacement investment property should guide the real estate investor's decision and not the income tax aspects.
Real estate investors may want to consider the merits of co-ownership or fractional ownership real property interests such as tenant-in-common investment property interests (TIC properties or TICs), or other forms of co-ownership interests in real estate (CORE), when looking for suitable replacement investment properties, especially before charging into a purchase of investment real estate that may not make economic sense or be suitable for the real estate investor's goals and objectives.
Fractional or co-ownership real property interests allows the real estate investor to purchase, with other real property investors, a larger, potentially more stable and profitable institutional quality real property asset than what the real estate investor might have acquired on their own. And, by acquiring TIC investment property interests in numerous institutional real estate investment properties, the real estate investor can achieve better diversification and improved overall quality in their real estate investment portfolio.
The Department of the Treasury issued Revenue Procedure 2002-22 in March of 2002, which provided certain guidelines (not safe harbor provisions, see below) pursuant to which the Internal Revenue Service would consider issuing Private Letter Rulings for specific TIC investment property ownership interests acquired as like-kind replacement investment properties as part of a 1031 exchange transaction.
The guidelines contained within Revenue Procedure 2002-22 do not provide "safe harbor" or "guaranteed" structures for tenant-in-common investment properties. They do give some guidance for TIC Brokers and TIC Sponsors to use when structuring tenant-in-common investment property offerings.
There are many TIC Brokers and TIC Sponsors that can assist you in selecting the most suitable TIC investment property ownership interests to meet your real estate investment needs. TIC Brokers generally represent numerous TIC Sponsors and can better advise you in evaluating the various offerings available, and can help you in making a more informed investment decision as to whether the TIC investment property ownership interest is right and suitable for you.
Real estate investors should always seek the advise of their legal, tax and financial advisors to ensure that the 1031 exchange and/or the tenant-in-common investment property would be suitable for their needs.
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