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Tenancy-in-Common Property Solutions

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Overview of tenancy-in-common investments and their advantages as 1031 exchange replacement properties

Overview of tenancy-in-common investments and their advantages as 1031 exchange replacement properties

Published in: Economy & Finance, Business

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  • 1. TIC PROPERTY SOLUTIONS OAK RIVER INVESTMENTS Quality Investments. Individualized Solutions.
  • 2. Presentation Outline
    • Tenancy-In-Common (TIC) Overview
        • Definition
        • Single Ownership of Real Estate vs. TIC Ownership
    • 1031 Exchange Basics
        • Overview
        • 1031 Exchange Timeline
        • Revenue Procedure 2002-22
        • Tax Deferral Calculator
        • Benefits of TIC Ownership Structure per 1031 Exchange
    • TIC Industry
        • Industry Highlights
        • Broker / Dealer Role in 1031 Exchange
        • Sponsor Definition
    • TIC Exit Strategies
  • 3. Definition of a TIC
    • TIC investments have the ownership structure of a real estate asset in which two or more investors have undivided interest. These co-owners have a pro-rata share of revenue and debt on the asset.
  • 4. Benefits of Single-Ownership vs. TIC Ownership
  • 5.
    • A means to defer payment of capital gains tax on the sale of investment property
    • “ 1031” refers to the Internal Revenue Code that that was put into law, thereby allowing for the exchange
    • Also known as “Like-Kind” Exchanges
    1031 Exchanges
  • 6. 1031 Exchange Overview
    • What are the benefits?
      • Capitalization on the value of appreciated real estate
      • Diversification of investment properties by real estate sector, geographic location, and risk
    • Who would it suit?
      • Investors with real estate assets, looking to sell their property, and reinvest the proceeds into one or more real estate assets
  • 7. 1031 Timeline
    • You arrange for the sale of your investment property (relinquished property) and enter into an agreement with a Qualified Intermediary
    • At the closing of the sale, direct the proceeds to the Qualified Intermediary to be held for exchange
    • Identify up to 3 replacement properties with a 45-day window following the closing
    • Complete the exchange by closing on the purchase of a replacement property within 135 days from the end of the identification period
    0 days 45 days 180 days Identification Period Exchange Period
  • 8. Revenue Procedure 2002-22
    • The Marriage of 1031s and TICs
    • Characteristics
      • Up to 35 investors purchase and co-own a larger, institutional-quality property that has professional management set by the TIC sponsor
      • Unanimous voting for all major decisions (sale, refinancing, lending, management)
      • Co-owners share proportionate share of cash flow, and capital upon the sale
  • 9. Tax Deferral Calculator SALE VS. EXCHANGE (Example) 1) Calculate Net Adjusted Basis Original Purchase Price (Basis) $500,000 + Capital Improvement $50,000 - Depreciation -$150,000 = Net Adjusted Basis $400,000 2) Calculate Capital Gain Sales Price $1,200,000 - Net Adjusted Basis -$400,000 - Cost of Sale -$80,000 = CAPITAL GAIN $720,000 3) Calculate Capital Gain Tax Due Recaptured Depreciation (25%) $37,500 + Federal Capital Gain (15%) $85,500 + State Tax (IN 3.4%) $24,480 TOTAL TAX DUE $147,480
  • 10. Purchasing TICs through 1031 Exchanges
    • TICs provide
    • Faster closings for 1031 exchanges
    • Varying amounts of interest allowed to meet equity / debt requirements
    • Access to a higher-grade real estate asset with a relatively small investment
    • Professional property management
    • Pre-arranged financing
    • Diversification of investment portfolio
    • Incremental cash flow and appreciation
  • 11. TIC Market *Source: Omni Brokerage
  • 12. TIC Market *Source: Omni Brokerage
  • 13. 1031 TIC Exchange Flowchart
    • Indication of interest
      • Verify Accreditation and Discuss Objectives
      • Provide due diligence on Properties and TIC sponsors
      • Contact Qualified Intermediary
    • Opening of Exchange
      • Further review of offering memorandum and sponsor information
      • Ensure that up to 3 suitable properties are identified within a 45 day period
  • 14. 1031 TIC Exchange Flowchart
    • Allocation of Interest
      • Help in decision of which property to be purchased (if needed)
      • Keep continual communication with Qualified Intermediary, Sponsor, and Tax Professional
    • Closing on TIC
      • Ensure proceeds are transferred from escrow to TIC Sponsor
      • Review closing binder and keep on hand for records
    • Post-closing
      • Retain and review copies of distributions, operating reports to see if they are meeting projections
      • Ensure that property remains suitable
      • Upon holding period expiration, review investor options
  • 15. TIC Sponsor
    • Definition:
      • Typically a real estate company (Sponsor) will purchase the real estate asset, syndicate it as a TIC security, and then sell the undivided interests to accredited investors. The sponsor provides management for the property, as well as financing, which is usually non-recourse to investors.
      • The TIC Sponsor is responsible for all periodic distributions, all tax documents for the interests, and ensure that investors receive up-to-date information on the property. They do this via monthly/ quarterly conference calls and direct email. Sponsors must send quarterly operating reports and forecasts to the TIC investors.
      • The track record of TIC Sponsors, in many cases, consists of decades of industry experience.
  • 16. TIC Exit Strategies
    • Hold the asset until the end of the stated holding period
    • Right of first purchase to TIC Sponsor
    • Fellow TICs
    • Secondary Market
  • 17. Disclosures
    • This presentation does not constitute an offer to sell or a solicitation of an offer to purchase securities of any particular type or in any specific entity or real estate property. Definitive offering materials regarding any particular securities will be provided to prospective investors before any offer or sale is made. Accredited investors only my invest in TIC securities.
    • There are several risks associated with investing in tenancy-in-common securities as well as real estate. These include, but are not limited to, fees and expenses outweighing potential tax benefits, change of tax status, illiquidity, devaluations of property, and loss of direct management.
    • Oak River Investments, Inc. does not provide tax advice or legal counsel and this brochure does not constitute tax or legal advice. Each prospective investor should consult his own attorney, accountant or other professional advisor as to legal, tax and other related matters concerning any investment offered by or through the Company.
    • Oak River Investments, Inc. is a licensed broker-dealer, registered with the Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA).
  • 18.
    • 334 Beechwood Road, Suite 304
    • Ft. Mitchell, KY 41017
    • Off. (513) 898-0861
    • Fax (513) 898-0859
    • www.Oak-River.com
    • Naji@Oak-River.com [email_address]
    Questions?