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Advantages of 1031 Tenant In Common Exchanges

A popular option for real estate investors looking to engage in a 1031 exchange is a Tenant in Common (TIC) arrangement. Section 1031 of the Internal Revenue Code permits real estate owners to defer taxes and gains if they acquire “like-kind” replacement property of equal or greater value, as well as exchange property held for investment or productive use in a business or trade. TIC properties are a great option for those looking for passive cash flow, diversification, a more conservative investment, and those that have less than $1 million to invest.

1031 Exchange Place has been involved in the TIC industry since 1997 and can help exchangors select from the largest selection of tenants in common properties.  Read below for some of the primary benefits of tenants in common investments.

Low Minimum Investment

An estimated 28% of all 1031 exchanges involve capital amounts of $500,000 or less. The price of admission into the triple-net lease (NNN) market typically begins around $1,000,000, thereby locking many 1031 investors out of this arena. However, tenant in common ownership is available for as little as $50,000 and gives these exchangers access to investment-grade real estate and the passivity provided by NNN properties.

Diversification & Safety

In a typical 1031 exchange, the taxpayer will identify three potential replacement properties and subsequently purchase only one. TIC ownership makes it economically feasible to identify and acquire ownership interest in many properties, thereby decreasing risk through diversification.

Flexibility – Leftover Funds or a Backup Plan

Many people also consider a tenant in common 1031 exchange because of the flexibility of TIC’s. By identifying a TIC property as one of the replacement property choices, the taxpayer’s entire proceeds can be applied to the TIC property if the other choices fall through. In addition, if there is money left unspent after another closing, the taxpayer can invest the “spill-over” money in the TIC property.

Decreased Tax Risk

Because an investment position in a TIC property can be reserved for a period of time after the identification period, the potential for paying capital gains tax because of a collapsed deal is decreased.

Existing Financing

Typically, tenants in common properties already have non-recourse financing in place and can be assumed without qualification or loan assumption fees.

Speed

A TIC closing can take place within days of identification by eliminating the negotiation process, the loan qualification process, the credit checks, and the appraisal work.

Liquidity

By maintaining a secondary market of tenants in common ownership interest, new investors can select seasoned properties, and existing owners can liquidate their partial ownership interest.

Simplicity

A tenant in common investor receives a monthly check without the bother of day-to-day investment management.

Safety

Tenancy in common properties attracts tenants with greater financial strength and stability than is possible for the individual landlord.

Nate-Leavitt-web

1031 Investment Advisor

Nate oversees the daily operations, business development, and strategy for 1031 Exchange Place. He became interested in real estate from a young age due to his father's influence. After earning his real estate license at 18, Nate worked in the 1031 industry, focusing on business development through a unique white-labeling model. Following a religious mission in Taiwan, he continued in the industry until the 2008/2009 real estate crash. During the downturn, Nate pursued entrepreneurship and marketing, working with startups and outdoor companies. As the 1031 market recovered, he returned to work with his father, aiming to provide a more personalized experience for clients. Nate is passionate about outdoor activities and spends his free time with his wife and four sons, enjoying fly fishing, skiing, backpacking, rock climbing, and riding dirt bikes.