It is important to understand several facts about TICs:

• Each owner in a TIC receives an individual deed for his percentage interest in the entire property. Investors are individual owners, not limited partners.

• Each owner has the same rights as would a single owner.

• In March 2002, the IRS released Revenue Procedure 2002-22, which set forth the conditions and guidelines that allow a small group of single owners to invest into larger real estate projects. This cleared the way for 1031 exchanges into TIC properties.

• Most TICs are sold as a security, since it is deemed to be an 'investment contract'.  However, there are some options for real estate-based TICs as well.

Why are TICs popular for 1031 Exchanges?
Any investor who wants to trade into a management-free, NNN (triple net) single ownership property knows that product supply is low and competition is fierce, and there is a huge amount of legwork just to obtain a property. Those who do manage to tie up a property with a Letter of Intent in proper time to identify (45 days from sale of relinquished property by the IRS rule) need to negotiate the contract, conduct the due diligence, and arrange financing. Sometimes one cannot successfully negotiate the contract to satisfaction, sometimes facts come out in due diligence that show you do not want the property, and sometimes the financing becomes difficult to arrange - or a commitment can't be obtained before the end of the financing contingency (if the Seller even allowed one).

TIC sponsors have carefully conducted their selection and extensive due diligence process when they purchased or tied up the property (which is provided to you), they have arranged the financing with excellent terms (and it is the desirable non-recourse financing), and they have done all the work that you the investor would have to do. Investors and their team (attorney, accountant, etc.) can review the due diligence information in appropriate time frames for the trade.  Investors can 'slide' into properties with little fuss, and meet all of the deadlines required by the IRS in time.

Another more obvious reason why TICs are popular with the 'smaller' investor is that the investor is able to buy into institutional-grade properties they could not buy on their own, especially management-free credit-tenant real estate that would be too expensive or out of reach to them.

Some 'larger' investors like TICs because they can spread their investments into a number of properties and diversify the portfolio, much like their stock portfolio, and in addition they can complete the 1031 exchange within the time limits.

**************************************************************************************
TICs are popular because they are simpler to acquire than many types of properties (many of the same reasons as sited above), can be conservative and straight-forward, and the returns are generally projected and estimated. Cash flow is not guaranteed and can fluctuate, but the Proforma reports and projections help the investor to know the studied scenario based on tenants, leases, expenses and such.  No management, no fuss, no tenant problems - this is appealing to more and more people.   The investor is also able to diversify - for instance, some funds into a Class A office building, some funds in a Class A apartment complex, and some into a prime retail powercenter.
**************************************************************************************

It is important to understand the TIC sponsors, their track record and background.  (The sponsor is the company that brings the product to market for sale). It is also important to understand details about the property itself - the real estate fundamentals - and the financing.  There are many details that make one investment stronger than another.  Legacy assists you in every step.

TICs
Legacy Real Estate & Investments studies the TIC sponsors (and they are growing each quarter) and only refers or suggests offerings by reputable TIC sponsors to assist investors with the best possible choices:

Class A Office Buildings with credit or national tenants
Large Apartment Complexes in appreciating areas
Retail, both single tenant and shopping centers
New Assisted Living Facilities
Other specialized property types, including industrial

• Some of the sponsored properties have long term NNN (triple-net) leases or Master NNN Leases in place, usually with annual increases to the Tenants in common.  This offers known returns to the investor.  However, it does cap potentially higher returns and there are some inherent weaknesses to a Master lease. Sophisticated investors often prefer a proforma type of approach, so the upside isn't capped.  Legacy can explain further if interested.

• TIC offerings have the most advantageous non-recourse (no personal guarantee required from the investor) financing, although an all-cash TIC is available through one retail sponsor, and from time to time other sponsors will offer this.   Legacy does not recommend investing in a TIC with interest-only loans.  (Many sponsors may have 1 or 2 years of interest-only, which can work if the real estate fundamentals and entire offering make sense).

• Sponsors provide the entire due diligence packet to the prospective investor and handle the financing placement and Closing procedures, as well as providing annual tax forms and reporting on the property to the investors. 

Several TIC properties can hold IRA funds with monthly cashflow.  Others have mortgaged-backed notes that pay a nice return - some may be used for your IRA as well.

Summary - Advantages of TIC ownership:

• Low Minimum Investment for any Investor. $100,000 to $350,000 minimum for some TIC investments (this varies by property and has been rising); $250,000 to $450,000 is now more common as a minimum, though some offerings could have a minimum as high a $1M to $1.5M. 
• Flexibility for the 1031 Exchange. By identifying a TIC property as one of the replacement choices, the taxpayers entire proceeds can be applied to the TIC if the other choices fall through as it can be a sure thing; or the taxpayer decides to place all proceeds into the TIC or TICs as a first choice; or the taxpayer can invest the 'spill-over' monies into the TIC.
• Decreased 1031 Risk. If a deal collapses among other properties identified for a 1031, the TIC is ready to take all proceeds.  Investors can choose properties in which the TIC sponsor has already closed and owns the property, thereby taking away a 1031 closing risk.
• Speed and Simplicity. By eliminating the loan shopping process, the time expended to search for a loan, to negotiate, handle  due diligence and appraisal work, etc. can be avoided or at the least handled in shorter time frames.
• Diversification. In a typical 1031 exchange, the taxpayer will identify 3 potential replacement properties and subsequently purchase only 1. TIC equity ownership makes it feasible to identify and acquire ownership in 3 properties, thereby increasing diversification (the investor can also choose 3 different property types, such as a retail building, an office building, and an assisted living facility, for example.)  Partial ownership in properties in different geographic areas can bring even greater stability to a portfolio.

Summary - Disdvantages of TIC ownership:

• There is no developed secondary market for TICs.  The investments are to be long-term holds (2 years to 10 years or more, depending on the property) so you should never invest monies that you think you would need.  While you can sell a TIC share, it could take some time and there are unknowns.
• Real estate is illiquid by nature.  Related to the first point, remember than real estate is not liquid.  You can't decide to sell today and have the cash tomorrow.
• You will not be in management control.  A professional management team will handle your asset.  While this can be an advantage, for some people it can be seen as a disadvantage - that is, loss of control.
• You cannot refinance your portion.  There will be non-recourse financing on the TIC building, which you will 'assume'. 
• You will own a property with other people, unknown to you.  Certain decisions will require a vote or consensus and there is some risk here.
• In any investment, including a TIC, you could lose your money. Review your situation and the investment carefully before investing.

Kathy Heshelow is the author of the newly published book, EFFORTLESS CASH FLOW: the ABCs of TICs (TENANT IN COMMON PROPERTIES), an educational book for investors and advisors.  (www.ticbook.com)

Final Word - It is important to understand that there are risks in any investment.  It is important to understand the Pros and Cons of TIC investing.  Please discuss this fully with Kathy Heshelow.

This is neither an offer to sell nor a solicitation to buy a security.  Such an offer can only be made by means of a Private Placement Memorandum.

Contact Legacy  to discuss this today, and ask for the emailable information sheets with more details on TICs.  Get educated about issues through radio interviews at www.ticbook.com/media.html

Legacy Real Estate & Investments, Inc. and CapWest Securities, Inc. are not affiliated companies.

Securities offered through CapWest Securities, Inc. 
Member  FINRA (former NASD), SIPC, MSRB
3900 S. Wadsworth Blvd., Suite 590, Lakewood, CO 80235
Tel: 303.798.5407

Member:

This logo is a registered trademark of the Tenant-in-Common Association.