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1031-Tenants in Common- FAQ
1031 Exchange Information - FAQ
tenants in common - Question
What is tenants in common?
In a tenants in common investment, multiple owners come together to purchase a large, institutional-grade, tenants in common
property, not as limited partners, but as individual owners. Each co-owner receives an individual deed at closing
(unless the property is structured under a Delaware Statutory Trust {DST}) for his or her own undivided fractional interest in the entire property, has all the same rights as a single owner, and shares the proportionate share of net income and rick reward with other TIC investors.
Question -
tenants in common - Question
Does purchasing a Tenants-In-Common satisfy the requirements of a 1031 Tax Deferred Exchange?
In March 2002, the IRS issued Revenue Procedure 2002-22, 1 C.B. 733 ("Rev. Proc. 2002-22"), which addresses the conditions under which the IRS will consider a request for a ruling that a tenants in common interest in rental real estate is not an interest in a partnership. While these guidelines do not create a "safe-harbor" per se, they do provide guidance for tenants in common Exchange Sponsors of and investors in 1031 tenants in common interest who wish to seek private letter rulings. Again, all potential exchangers should speak with a tax professional to see if 1031 tenants in common property exchange transactions would be a suitable tax solution for their individual situation.
TIC Advisors is a real estate advisory firm specializing in 1031 exchange investments structured for co-ownership. The company educates potential exchangers and 1031 tenants in common
properties. TIC Advisors' consultants may be able to help educate you so that you may choose real estate investments which are suitable for your investment objectives.
tenants in common - Question
What is the role of the tenants in common Exchange Sponsor?
In relation to the Exchanger, the tenants in common Sponsors are responsible for the following: 1) finding a property, 2) successfully putting it under contract, 3) performing research, 4) acquiring financing, 5) completing tenants in common sales, 6) arranging for property management services, 7) when available, sending monthly payments to tenants in common owners, 8) providing owners with annual summary statements, 9) initiating the sale of the property and 10) distributing the proceeds among owners.
tenants in common Question -
What is an accredited investor?
securities laws are designed not only for disclosure, but also to emphasize and establish suitability standards. Because real estate investments have inherent risks and it is possible for investors to lose their money, the SEC wants to ensure the participants in these transactions have been pre-qualified to have financial substance and knowledge, and are considered to be "accredited".
To be considered accredited, an investor must have a minimum $1 million net worth or have earned $200,000 per year for the past two consecutive years if single or $300,000 per year if filing a joint tax return. If the party is an entity, it must have a $5 million net worth or each of the stockholders, partners, or members must meet the accredited standards separately.
tenants in common - Question
What are the typical profile, type, price, and location of tenants in common properties?
tenants in common properties are generally institutional-grade 1031 properties, such as an office building, a drug or grocery anchored shopping center, multifamily apartment community, warehouse/distribution, or industrial property. The typical profile of a tenants in common Property is fully or partially leased, stable properties, "B+" to "A-" properties in major metropolitan markets. Property values can range anywhere from $5 million to $150+ million. Property locations vary and can be available depending on supply on a national basis.
tenants in common - Question
What is the typical number of tenants in common investors, and what is the usual investment amount?
While IRS guidelines (Revenue Procedure 2002-22) limit the number of investors to a maximum of 35 per property, this is typically driven by the lenders and generally ranges between 15-25. Minimum investments are determined by the total amount of ownership equity being sold and the number of ownership interest the lender allows. Minimum investments are determined by the total amount of equity being raised for an investment and the number of investors the lender allows. Minimum investments can start as low as $100,000 and can reach as high as $1,700,000 or higher depending on the offering documents. Typically, however, tenants in common minimum investments tend to range from $250,000 to $600,000.
tenants in common - Question
How can a tenants in common interest qualify both as a security and real estate?
Although most syndicated tenants in common properties are considered real estate for
tax status for a 1031 exchange replacement 1031 property, they are generally considered securities for
securities law purposes when it comes to their marketing and sale. While this may sound confusing, it is due to the difference in the definition of the word security in the tax world compared with its definition in the securities world.
As a result, syndicated tenants in common
offerings are offered through Registered Representatives who are appropriately registered through and associated with an actively registered broker/dealer who is a member of the NASD (National Association of Securities Dealers). Offerings are sold by a Private Placement Memorandum only, and are offered solely to pre-qualified Accredited Investors.
