A terrific solution to a common dilemma. It’s a classic scenario: an experienced real estate investor finally grows weary of dealing with tenant concerns, property manager selection and vendors and wants some relief. Maybe he or she wants to retire. Maybe the investor wants to get out of less desirable or “problem” properties and restructure a portfolio.

Here’s the hitch: selling a highly appreciated property will trigger major capital gains taxes. The solution, obviously, is a 1031 tax-deferred exchange, and for many mature real estate investors, the best option turns out to be a 1031 exchange into a Tenant-in-Common (TIC) property. It is a great strategy to defer taxes, reduce real estate risk, and improve profit potential.

An upgrade from the usual like-kind exchange. A basic 1031 exchange provides a way to defer capital gains tax, plus a route out of a problem property toward a property with better potential. The 1031 TIC replacement option goes a step further: it meets like-kind criteria while giving an individual an opportunity to invest in institutional real estate.

A fractional ownership interest in a prime property. TIC investment is an excellent way to diversify a real estate portfolio. As a TIC is an undivided fractional interest in a “whole” property, it actually gives you the same rights as a sole owner while being an alternative to sole ownership. You have a deeded interest, and you can transfer your ownership interest independently of the transfer of other TIC interests in the property.

As TIC ownership interests are priced on a percentage basis, arranging a like-kind exchange is convenient. In fact, an accredited investor can invest in TICs all over the country, and exchange out of a property into multiple TICs to build a diversified portfolio of replacement properties.

A step up for the sole investor. Wealthy as he or she may be, the average individual real estate investor is not ready to purchase a 300-unit apartment community, a 10-story commercial office building, or a major shopping mall. But TICs “open the doors” to these high-grade NNN-leased properties featuring elite third-party management and fixed-rate, non-recourse loans. Instead of having to put up with the usual “toilets, tenants and trash,” an investor gets money in the mailbox in exchange for the fractional ownership.

A securities investment. TICs are securitized, so the average real estate broker or agent cannot arrange a TIC investment. It takes a securities-licensed investment advisor. Potential TIC investors also need to meet the Securities and Exchange Commission definition of an accredited investor. That definition includes individuals with a net worth of $1 million or more or annual income of $200,000 or more, or trusts or partnerships with assets of $5 million or more.1

Is this for you? If you are (or you know) an experienced real estate investor whose portfolio contains one or more highly appreciated properties, the TIC investment opportunity might be just the remedy to defer taxes, retire and diversify. Inquire about it today with a qualified, securities-licensed investment advisor.

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.