How can you invest in a TIC?
TIC properties are best known as replacement property in a 1031 exchange. Many investors also use these acquisitions for cash and IRA investments. One of the requirements of leveraged real estate held by an IRA or 401(k) is that the debt must be “non-recourse” most if not all TIC properties on the market today are non-recourse *. Used as an IRA investment, TIC ownership properties have the same tax treatment (deferred taxation) as any other IRA investment for this reason there is no reason to execute an exchange upon sale. If leveraged real estate is to be held in an IRA part of the income may be subject to UBIT * you might wish to consider using a 401(k) instead. Most TIC properties have a portion of the property offered as an LLC on a non-exchange basis. This LLC position is a non-exchangeable cash position used to take up slack in the exchanges and is what gives TIC properties the flexibility to work with different equity amounts so easily. The LLC positions are also flexible in size and sometimes we see positions for under $5,000.
How can you invest in a REIT?
REITs come in many different flavors. There are those that simply look for opportunistic acquisitions across a wide variety of properties. Then there are those that specialize in certain properties. For example a REIT might only purchase class A office buildings or might be limited to Senior Housing or Apartments. You get to target your investment to a certain asset type. REITs can be a way to diversify an IRA or 401(k) and have minimums as low as $1000 and the dividends can be reinvested to compound any returns. “You are sharing in a pool of properties [in terms of the REIT's portfolio], not just one,” giving the investor diversification, says Louis S. Weller, a principal at Deloitte & Touche LLP’s national real-estate tax services group in San Francisco.
One advantage to the securitized real estate investor is they can diversify. Therefore, with cash, IRA money or IRC section 1031 exchange proceeds securitized real estate offers some potentially valuable additions to your diversification strategy. Whether you are investing in a Tenant in Common (TIC) interest, non-traded Real Estate Investment Trust (REIT) or the house next-door they are subject to the risks inherent in owning, operating and disposing of real estate including vacancies, declining market value and illiquidity.
* www.irs.gov
This material is for educational purposes, it does not constitute an offer for purchase or sale of real estate securities. Such offers are solely made through the sponsor’s Private Placement Memorandum, TIC properties and some REITs are only available to accredited investors. IRC 1031 is complex tax concept therefore you should always consult with your legal or tax professional for details regarding your specific situation.
Rick Willoughby is a Registered Principal offering securities and advisory services through Independent Financial Group, LLC, a registered broker-dealer and investment advisor. Member FINRA and SIPC. Independent Financial Group, LLC and Symphony Financial Services, LLC are not affiliated.