Tuesday, October 24, 2006

Tenant in Common Programs

Tenant-in-common (TIC) programs provide a way to keep money invested in real estate without the stresses of being a landlord.

Billions of dollars have been invested in TICs since 2002, when the IRS cleared up the status of Section 1031 exchanges, which allow investors to invest the revenue earned from the sale of one property into another property and avoid a capital gains tax, providing they complete the transaction in a short period of time.

Each property can have up to 35 investors, most of whom would not be able to own a building of this magnitude otherwise. Omni Brokerage says sponsors sold $7.2 billion worth of TIC properties to investors last year, which is greater than the total value ($7 billion) sold between 2001 and 2004.

The amount sold already this year ($7.7 billion) has passed the 2005 total, thanks to a good deal of investments being made independent of 1031 exchanges.

Often, TICs are sold as securities, and are required to include a private placement disclosure about the property, such as what the sponsor paid for it, the sponsor's share of profits, how much selling commissions are, and any potential risks involved.

However, those sold as private real estate transactions are not subject to SEC regulations, and often include disclaimers protecting brokers from any liability.

TICs are a better fit for some investors than for others. Those who feel the need for hands-on control should look elsewhere, according to Gary Gorman, a managing partner with 1031 Exchange Experts, an intermediary for 1031 exchanges.

Source: New York Times, Vivian Marino (10/17/06)