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More Return On Equity For Your Investment Property Dollar
ew would deny that real equity, but that can be
estate is a solid problematic. These investors face
investment. It provides an the reality of prohibitive
attractive combination of capital gains taxes and
stability, reliable cash flow, recaptured depreciation, as well
preservation of principal and as the task of identifying an
capital appreciation. However, alternate investment venue; or
many investment property owners locating, acquiring and financing
nearing retirement find suitable replacement property in
themselves in a quandary. They the time period allowed, taking
are equity rich, but cash poor, advantage of tax deferral under
with increases in the value of IRS code section 1031.
their property far outpacing
income growth. They also are An ideal solution for many
often tied down by the day-to-day investment property owners may be
issues of property management to reinvest the proceeds from the
and, particularly in cities like sale of their property and
San Francisco, California, utilize a subsequent 1031
shackled to the constraints of exchange into a tenancy-in-common
rent (and eviction) control. In (TIC) ownership type, also known
fact, San Francisco is home to as co-ownership of real estate
some of the lowest cash return on (CORE) interest in a suitable
equity in the state's real estate replacement property.
marketplace, which is somewhat
counter-intuitive given 1031 exchanges, also known as
California's ever-booming Starker exchanges or tax-deferred
property market. exchanges, permit owners to sell
investment property and defer tax
The obvious answer is to sell the payments by reinvesting the
property and unleash the dormant proceeds into another investment
property (or investment and it is subject to property
properties). In order to taxes, gift tax, and estate and
completely defer the payment of inheritance taxes in the same
tax, among other things, the manner as any property held in
replacement property must be of sole ownership. With a TIC/CORE
equal or greater value and all property, each of up to
the equity from the sold property thirty-five investors have the
must be reinvested in the new opportunity to own an undivided
property. The marriage of 1031 fractional ownership interest in
exchange and TIC/CORE allows an investment-grade property,
investors not only to defer their such as an office building,
capital gains taxes but also to shopping mall, apartment complex
upgrade their investment real or industrial property, costing
estate. anywhere from $10 million to
$150-plus million.
TIC/CORE is a way of sharing
ownership of property among two The benefits of investing in
or more persons whereby each TIC/CORE properties are
tenant holds an undivided substantial. Such properties
interest in the property. employ professional asset and
Tenants-in-common may own property management, relieving
interests of differing sizes. the investor of day-to-day tenant
TIC/CORE investors are on the headaches. More important,
title and considered separate investors often receive greater
owners of the real estate. They cash flow and overall returns
share pro rata in the income, tax than they had in their previous
benefits and appreciation of the sole ownership property.
property. Their TIC/CORE interest Typically, many people receive
can be purchased, sold, gifted, between 2-3 percent of their
bequeathed by will or inherited; equity in their property in
rental income. By selling this financing in place, which is
property and placing the equity perfect for investors working
into a larger investment-grade within the 1031 exchange time
property, they can potentially frame. Numerous hours of upfront
experience annualized cash flow investigation, evaluation, due
from 6-8 percent, paid monthly, diligence and life cycle planning
and 12-16 percent overall return transpires before a property is
on their investment. Also offered to an investor group.
compelling is that TIC/CORE Investors faced with only a
exchange investors can diversify 45-day window to identify a
among several property types, and suitable replacement property to
geographic locations through complete a 1031 exchange can
fractionalized ownership, while select a suitable project with
still enjoying 1031 exchange confidence.
benefits on each amount. Thus,
investors can potentially reduce Given the tax deferral,
risk in their overall real estate institutional-grade quality of
portfolio. the property, professional
property management and
Investors seeking to exchange for pre-arranged, non-recourse
a TIC/CORE property are best financing aspects, a 1031
advised to work with a financial exchange replacement property
advisor experienced in 1031 structured as tenancy-in-common
exchanges. Such advisors work ownership can be a very wise and
closely with top real estate profitable solution. It allows
providers, who give the investor the investor to maintain
access to the best properties everything they like about real
available. In addition, many estate (monthly income,
TIC/CORE opportunities have preservation of principal,
pre-arranged, non-recourse capital appreciation, etc.),
while eliminating most of the (c) 2005, 1031 Exchange Options.
hassles of property ownership.
About the Author:
Cary Losson is the Founder and President of 1031 Exchange Options. A luminary in the TIC/CORE 1031 exchange marketplace, Mr. Losson is frequently quoted in journals and periodicals concerned with investment property issues and advice. For more resources to assist in your learning: http://www.1031exchangeoptions.com/resources.html
Source: www.isnare.com
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