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clearfund
ParticipantMy bias is towards tangible sticks/bricks as well.
A TIC (tenant in common) is effectively a ‘fractional’ share of a property. Thus you personally are on title to 1/24th undivided interest in a property.
To effect a 1031 exchange you must replace your current property with new property at a value equal to (or greater) what you sell. You must also take title to the property in the same way as you held title on the property being sold. You must also ‘replace’ the debt that you had on the old property ($500k loan on the old property, you need a loan of $500k+ on the new property).
Hence the TIC was born as a way to put you on title of the new property, move your equity over, and ‘replace’ your debt with a new loan in your name.
One big problem is that since the property has a loan, your share of the property must be included as collateral for the loan, and you must PERSONALLY be on the hook for the loan, fill out the loan application in YOUR NAME/SSN, and the loan goes on your personal financial statment.
I believe that this adds too much exposure to any client who can avoid it. Our goal is to move debt off of your personal balance sheet as the lost opportunities and downside are too great.
Additionally, as a direct (on title) owner you will face legal liability for any issues pertaining to the property. Again, downside risk with no upside.
The ONLY reason to do this is if you are selling a property in an exchange and need to take title to a new property. If you are simply investing capital then a TIC is likely NOT the answer.
The likely answer is to invest in a property, or pool of properties, with a seasoned manger/sponsor. In this case they will establish a new LLC/LP ownership entity for each property and you will own a portion of the asset via shares (similar to stock in a company) in the single purpose entity (i.e. it has a single purpose which is to own building A).
Here you will be a passive investor who is shieled against lititgation. As in a corporation your sole exposure is your investment amount.
In this scenario, the sponsor gets the loan w/o you having to do anything, and the debt is NOT on your financial statement/balance sheet (again, just like stock in a company).
Operationally, cash will pass through directly to the investors just like the TIC, and the manager will handle all day to day work and reporting to you.
ParticipantMy bias is towards tangible sticks/bricks as well.
A TIC (tenant in common) is effectively a ‘fractional’ share of a property. Thus you personally are on title to 1/24th undivided interest in a property.
To effect a 1031 exchange you must replace your current property with new property at a value equal to (or greater) what you sell. You must also take title to the property in the same way as you held title on the property being sold. You must also ‘replace’ the debt that you had on the old property ($500k loan on the old property, you need a loan of $500k+ on the new property).
Hence the TIC was born as a way to put you on title of the new property, move your equity over, and ‘replace’ your debt with a new loan in your name.
One big problem is that since the property has a loan, your share of the property must be included as collateral for the loan, and you must PERSONALLY be on the hook for the loan, fill out the loan application in YOUR NAME/SSN, and the loan goes on your personal financial statment.
I believe that this adds too much exposure to any client who can avoid it. Our goal is to move debt off of your personal balance sheet as the lost opportunities and downside are too great.
Additionally, as a direct (on title) owner you will face legal liability for any issues pertaining to the property. Again, downside risk with no upside.
The ONLY reason to do this is if you are selling a property in an exchange and need to take title to a new property. If you are simply investing capital then a TIC is likely NOT the answer.
The likely answer is to invest in a property, or pool of properties, with a seasoned manger/sponsor. In this case they will establish a new LLC/LP ownership entity for each property and you will own a portion of the asset via shares (similar to stock in a company) in the single purpose entity (i.e. it has a single purpose which is to own building A).
Here you will be a passive investor who is shieled against lititgation. As in a corporation your sole exposure is your investment amount.
In this scenario, the sponsor gets the loan w/o you having to do anything, and the debt is NOT on your financial statement/balance sheet (again, just like stock in a company).
Operationally, cash will pass through directly to the investors just like the TIC, and the manager will handle all day to day work and reporting to you.
ParticipantQuerty – Let’s not get focused on TIC’s specifically as they are just one specific vehicle that fits a specific situation: 1031 exchange into a passive real estate vehicle.
If this is not your specific situation, there are many other options open to you to achieve the same goals of passive, institutional-quality real estate investment.
There are traded REITS, non-traded REITS, diversified funds, llc/limited partnerships for single properties, and sole ownership.
No one of the items above are horrible, or perfect, by definition. However, your specific circumstances will dictate which one, or two, fit your needs best.
Once you determine this, then its a matter of sourcing/filtering the managers who run these operations, and then understanding the individual properties within the pool/s.
Only then, should one pull the trigger.
We come from the institutional pension fund advisory world so our predjudice is towards high quality cash flow AND protection of principal first, captial gains while important, are secondary.
The theory being that even if you ‘lose’ money in ‘real’ terms (meaning inflation exceeds cash flow yield) in the out years, you still have your principal in place to keep taking shots when opportunity presents itself.
As for nnn Class “A” properties I would say you are on the right track with the nnn part but be cautious about the allure of the class “a” generality. Remember that nnn is not magic. The tenant factors it into their total cost of occupancy and risk profile. They won’t just pay nnn charges because we ask them to.
The concern with fancy “A” buildings is that they are expensive to operate, and buy. Thus the lease rates are HIGH. When rates are high, vacancy rises in down times and you NEVER get that rent back…EVER.
Each time a tenant leaves, your dividend check drops $1:$1. Then they must drop their lease rate to fill it up so your dividend never returns to where it was and you never get that lost dividend income back.
Plenty of Class ‘A’ bldgs have been crushed. Take the John Hancock Tower in Boston. It was just sold at the foreclosure auction at 50% of what the last buyer paid for it…1/2 off the Hancock Tower!!!
Vacancy is the #1 enemy of real estate, thus find property where your vacancy risk is as close to zero as possible and you’ll be light years ahead.
ParticipantQuerty – Let’s not get focused on TIC’s specifically as they are just one specific vehicle that fits a specific situation: 1031 exchange into a passive real estate vehicle.
If this is not your specific situation, there are many other options open to you to achieve the same goals of passive, institutional-quality real estate investment.
There are traded REITS, non-traded REITS, diversified funds, llc/limited partnerships for single properties, and sole ownership.
No one of the items above are horrible, or perfect, by definition. However, your specific circumstances will dictate which one, or two, fit your needs best.
Once you determine this, then its a matter of sourcing/filtering the managers who run these operations, and then understanding the individual properties within the pool/s.
Only then, should one pull the trigger.
We come from the institutional pension fund advisory world so our predjudice is towards high quality cash flow AND protection of principal first, captial gains while important, are secondary.
The theory being that even if you ‘lose’ money in ‘real’ terms (meaning inflation exceeds cash flow yield) in the out years, you still have your principal in place to keep taking shots when opportunity presents itself.
As for nnn Class “A” properties I would say you are on the right track with the nnn part but be cautious about the allure of the class “a” generality. Remember that nnn is not magic. The tenant factors it into their total cost of occupancy and risk profile. They won’t just pay nnn charges because we ask them to.
The concern with fancy “A” buildings is that they are expensive to operate, and buy. Thus the lease rates are HIGH. When rates are high, vacancy rises in down times and you NEVER get that rent back…EVER.
Each time a tenant leaves, your dividend check drops $1:$1. Then they must drop their lease rate to fill it up so your dividend never returns to where it was and you never get that lost dividend income back.
Plenty of Class ‘A’ bldgs have been crushed. Take the John Hancock Tower in Boston. It was just sold at the foreclosure auction at 50% of what the last buyer paid for it…1/2 off the Hancock Tower!!!
Vacancy is the #1 enemy of real estate, thus find property where your vacancy risk is as close to zero as possible and you’ll be light years ahead.
ParticipantQuerty – Let’s not get focused on TIC’s specifically as they are just one specific vehicle that fits a specific situation: 1031 exchange into a passive real estate vehicle.
If this is not your specific situation, there are many other options open to you to achieve the same goals of passive, institutional-quality real estate investment.
There are traded REITS, non-traded REITS, diversified funds, llc/limited partnerships for single properties, and sole ownership.
No one of the items above are horrible, or perfect, by definition. However, your specific circumstances will dictate which one, or two, fit your needs best.
Once you determine this, then its a matter of sourcing/filtering the managers who run these operations, and then understanding the individual properties within the pool/s.
Only then, should one pull the trigger.
We come from the institutional pension fund advisory world so our predjudice is towards high quality cash flow AND protection of principal first, captial gains while important, are secondary.
The theory being that even if you ‘lose’ money in ‘real’ terms (meaning inflation exceeds cash flow yield) in the out years, you still have your principal in place to keep taking shots when opportunity presents itself.
As for nnn Class “A” properties I would say you are on the right track with the nnn part but be cautious about the allure of the class “a” generality. Remember that nnn is not magic. The tenant factors it into their total cost of occupancy and risk profile. They won’t just pay nnn charges because we ask them to.
The concern with fancy “A” buildings is that they are expensive to operate, and buy. Thus the lease rates are HIGH. When rates are high, vacancy rises in down times and you NEVER get that rent back…EVER.
Each time a tenant leaves, your dividend check drops $1:$1. Then they must drop their lease rate to fill it up so your dividend never returns to where it was and you never get that lost dividend income back.
Plenty of Class ‘A’ bldgs have been crushed. Take the John Hancock Tower in Boston. It was just sold at the foreclosure auction at 50% of what the last buyer paid for it…1/2 off the Hancock Tower!!!
Vacancy is the #1 enemy of real estate, thus find property where your vacancy risk is as close to zero as possible and you’ll be light years ahead.
ParticipantQuerty – Let’s not get focused on TIC’s specifically as they are just one specific vehicle that fits a specific situation: 1031 exchange into a passive real estate vehicle.
If this is not your specific situation, there are many other options open to you to achieve the same goals of passive, institutional-quality real estate investment.
There are traded REITS, non-traded REITS, diversified funds, llc/limited partnerships for single properties, and sole ownership.
No one of the items above are horrible, or perfect, by definition. However, your specific circumstances will dictate which one, or two, fit your needs best.
Once you determine this, then its a matter of sourcing/filtering the managers who run these operations, and then understanding the individual properties within the pool/s.
Only then, should one pull the trigger.
We come from the institutional pension fund advisory world so our predjudice is towards high quality cash flow AND protection of principal first, captial gains while important, are secondary.
The theory being that even if you ‘lose’ money in ‘real’ terms (meaning inflation exceeds cash flow yield) in the out years, you still have your principal in place to keep taking shots when opportunity presents itself.
As for nnn Class “A” properties I would say you are on the right track with the nnn part but be cautious about the allure of the class “a” generality. Remember that nnn is not magic. The tenant factors it into their total cost of occupancy and risk profile. They won’t just pay nnn charges because we ask them to.
The concern with fancy “A” buildings is that they are expensive to operate, and buy. Thus the lease rates are HIGH. When rates are high, vacancy rises in down times and you NEVER get that rent back…EVER.
Each time a tenant leaves, your dividend check drops $1:$1. Then they must drop their lease rate to fill it up so your dividend never returns to where it was and you never get that lost dividend income back.
Plenty of Class ‘A’ bldgs have been crushed. Take the John Hancock Tower in Boston. It was just sold at the foreclosure auction at 50% of what the last buyer paid for it…1/2 off the Hancock Tower!!!
Vacancy is the #1 enemy of real estate, thus find property where your vacancy risk is as close to zero as possible and you’ll be light years ahead.
ParticipantQuerty – Let’s not get focused on TIC’s specifically as they are just one specific vehicle that fits a specific situation: 1031 exchange into a passive real estate vehicle.
If this is not your specific situation, there are many other options open to you to achieve the same goals of passive, institutional-quality real estate investment.
There are traded REITS, non-traded REITS, diversified funds, llc/limited partnerships for single properties, and sole ownership.
No one of the items above are horrible, or perfect, by definition. However, your specific circumstances will dictate which one, or two, fit your needs best.
Once you determine this, then its a matter of sourcing/filtering the managers who run these operations, and then understanding the individual properties within the pool/s.
Only then, should one pull the trigger.
We come from the institutional pension fund advisory world so our predjudice is towards high quality cash flow AND protection of principal first, captial gains while important, are secondary.
The theory being that even if you ‘lose’ money in ‘real’ terms (meaning inflation exceeds cash flow yield) in the out years, you still have your principal in place to keep taking shots when opportunity presents itself.
As for nnn Class “A” properties I would say you are on the right track with the nnn part but be cautious about the allure of the class “a” generality. Remember that nnn is not magic. The tenant factors it into their total cost of occupancy and risk profile. They won’t just pay nnn charges because we ask them to.
The concern with fancy “A” buildings is that they are expensive to operate, and buy. Thus the lease rates are HIGH. When rates are high, vacancy rises in down times and you NEVER get that rent back…EVER.
Each time a tenant leaves, your dividend check drops $1:$1. Then they must drop their lease rate to fill it up so your dividend never returns to where it was and you never get that lost dividend income back.
Plenty of Class ‘A’ bldgs have been crushed. Take the John Hancock Tower in Boston. It was just sold at the foreclosure auction at 50% of what the last buyer paid for it…1/2 off the Hancock Tower!!!
Vacancy is the #1 enemy of real estate, thus find property where your vacancy risk is as close to zero as possible and you’ll be light years ahead.
ParticipantQuerty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.Best of Luck
ParticipantQuerty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.Best of Luck
ParticipantQuerty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.Best of Luck
ParticipantQuerty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.Best of Luck
ParticipantQuerty – I’ll start this response by disclosing that I run a commercial real estate investment firm (investors, not brokers). We have never been involved in a single TIC on any level, but have advised our clients on the pros/cons of several TIC’s over the years(ps: coincidently our analysis was always not to make the investment due to their individual circumstances. We thought selling/paying the taxes was best since we knew tax rates were going to be rising and they’d have other losses to offset the gains..and getting debt off of their personal balance sheet/backs!).
Timing was the reason for most of the problems, not the TIC concept specifically. However, the TIC concept is limiting by its nature because you are personally on the hook for your share of the debt, and the odd restrictions on sales,etc. Have never been too interested in that investment model.
TIC’s are simply an outgrowth of old fashioned real estate partnerships. The TIC is a structure designed when people figured out the 1031 clients needed to actually BE ON TITLE for the 1031 exchange to be valid. If you do not take title to the new property then your exchange is invalid.
We won’t discuss the horrific front end fee structure of TIC’s which is due to the securitites lobby getting rulings that TICs are securities and NOT direct real estate offerings. This creates a huge middle man industry which is literally stealing fees from clients which should be going into the real estate. Fees north of 10% and no performance risk is absurd. One problem is that most TIC firms are really securitites firms playing real estate, not institutional real estate guys.
My suggestion is to speak with knowlegable people about your real estate goals/objectives (income, tax loss/gain/shelter, upside, etc) and then you can find reputable sponsors to work with to meet these objectives. Need to really look to the real estate developer/manager as the key to the process.
Be careful when speaking to real estate brokers/agents (commercial/residential) as their response will likely be “I’ll sell your property and buy you a great deal”. That may, or may not, be what’s in your best interest.I have heard many of the stories countless times about these deals. What we like are properties as follows:
1) leased ONLY to Investment Grade Tenants (s&p BBB or better)
2) Fortune 500 Tenants(Fortune 100 preferred: no income risk)
3) new/long term leases (15 years+ so no vacancy risk)
4) NNN leases so we have no expense exposure/risk
5) rental guarantees from the corporation
6) invest for strong sheltered cash flow
7) upside profits is desired, however, not relied upon given timing of your needed exit not timing up with the peak of the market.Best of Luck
ParticipantI’m partial to real estate so I’ve put cash into single tenant, nnn, bldgs with 15+ year terms remaining leased only to Fortune 100 companies. I like direct ownership, not non-traded REITS for many obvious reasons. Clearing 9% cash plus depreciation.
ParticipantI’m partial to real estate so I’ve put cash into single tenant, nnn, bldgs with 15+ year terms remaining leased only to Fortune 100 companies. I like direct ownership, not non-traded REITS for many obvious reasons. Clearing 9% cash plus depreciation.
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