What is a 1031 exchange and what benefit does it offer?
A seller of appreciated real estate has three taxing options: one is to pay the capital gains tax while the other two involve a 1031 exchange strategy. The seller can exchange their property for another like kind property and own it outright, or they can exchange into a Tenant-In-Common property and own an undivided interest in the property along with other like minded exchangers. When the equity or proceeds from the relinquished property is exchanged into a like kind property, the 1031 exchange rule allows for the capital gains taxes to be deferred. By deferring the tax, the investor has more equity to invest into the replacement property, which may allow them to earn a greater cash flow.
What is a Tenant In Common property?
A Tenant In Common investment allows up to 35 investors to pool their 1031 exchange equity to acquire a property. Each investor owns an undivided fractional interest in the property and shares proportionately in the net income and potential growth. Each TIC investor receives a separate deed and has the same rights as a single owner. Because TIC properties offer a management-free style of ownership, as well as flexibility in the amount invested, they are a popular choice for a 1031 exchange.
What are the benefits and risks of entering into a TIC investment?
Because TIC properties employ professional commercial real estate management companies, the approach allows the investor to receive potential cash flows and long term appreciation without overseeing the day-to-day operations. In addition, TICs enable maximum buying power by providing the investor with the ability to own real estate that may be too costly without shared ownership. TIC ownership can diversify a portfolio as well as potentially increase net cash flow and appreciation. As with any real estate investment, there is always the possibility that the property will depreciate or that costs associated with the transaction may outweigh the tax benefits.
What is the minimum investment for a DeSanto Realty Group TIC property?
The minimum investment required for a TIC property offered by DeSanto Realty Group varies with each deal. In recent transactions, the minimum has ranged from $250,000 to $500,000.
What is the typical hold period?
DeSanto Realty Group projects 10 year holding periods for their TIC properties.
The average hold period for the Tenant In Common industry is 5 to 7 years. Investors should consult their investment advisor to make sure the holding period is consistent with their needs for liquidity.
How are the properties managed?
DeSanto Realty Group uses third-party commercial real estate management companies to oversee the day-to-day management of each of the TIC properties. The third-party management company generally handles rent collection, leasing, marketing, grounds keeping and general maintenance at the various TIC residential communities and commercial buildings. The contracted management companies report directly to Jill Neff, DeSanto Realty Group's Director of Asset Management.