TIC’s are a unique way of owning real estate by having a percentage of the property, alongside other TIC owners, each with a percentage that adds up to 100%. They were popular a few years ago when investors were flush with capital gains on their long-held properties and sought to escape management duties by doing a tax-free exchange into a big property while escaping management duties.
Great concept in theory, but depends on two things working out: 1) Successfully farming out the management to outsiders you have to trust, and 2) Timing within the big real estate cycle. On both counts I have been unlucky, and am now paying the price.
Five years ago, flush with a big capital gain, I put several hundred thousand dollars into a promising TIC. It seemed to have everything: cash flow, great loan (5.06%!), experienced management, good RE product (high end apartment complex in the plush suburb of Overland Park, KS), and the TIC concept itself, which seemed fail-safe.
But the RE market peaked shortly thereafter, monthly cash flow checks, originally 8% on my investment, slowed and then stopped, and the management company, seeing the abyss, started to “milk” the property for its own cash flow benefit, knowing they would soon bail.
They sold, or gave away–not sure yet–their management contract to another firm. Three of us activist TIC owners, out of 24, are now trying to get answers. The new managers are on our side, and see the potential of the property itself and the rapidly-improving market it is in.
In retrospect, the big problem was timing within the grand real estate cycle. Had RE not nose-dived, the original management company would have hung in there. Five years ago everyone was looking at the fantastic returns of the immediate past. I assumed a less bouyant trend in rents and prices that would still generate a fairly riskless, moderate return. I just did not factor in a melt-down in virtually everything.
A lot of TICs are in trouble now, and many people have lost much or all of their investment. The leverage involved pretty much dictates that returns will be terrific in an up market and awful in a down market. But TICs will come back, if and when the broader market recovers.
