Re: Parking Lot 1031 - Posted by William L. Exeter
Posted by William L. Exeter on August 08, 2004 at 23:22:15:
Ray is right on the money. Liquidity is the major concern here. They can not contractually agree to buy it back, otherwise it will not qualify for 1031 exchange treatment. You would be relying on the market. The market is so hot right now that you would have no trouble selling your TIC Interest, but in one year you never know.
Here are some other comments that I wrote in an article recently that might be helpful:
I do between five and ten 1031 exchange workshops each month with TIC Brokers.
First, it is a real estate investment, so typical real estate market risks are still present.
Second, you are investing with a group of investors (fractional interests) so you should plan to hold until the planned exit strategy/event occurs.
Third, TIC Interests are typically sold as security interests so getting out of them will depend on the market unless 100% of the TIC owners vote to sell 100% of the property. Liquidity will always be the number one issue here in my mind.
Fourth, most initial rates of returns that are being quoted start between 6.5 to 7.5% and end up with an estimated total return, which would include cash on cash returns plus the capital gain at the back end, of 13% to 15%.
Fifth, the TIC Sponsors, as they are called, do make money up front. This is compensation for their due diligence, financing, packaging, etc. Is it expensive, yes. Could you or I take down a $50 million building, probably not. You must evaluate the deal, including the costs and determine if the investment makes sense for you. It is not for everyone. It is not a good place to “park” money due do the liquidity concerns. It is not a good place to invest if you can do a deal with a better return and want to deal with the property management.
Sixth, you get rid of all the property management headaches. The TIC Sponsor will either handle the property management or contract it out.
These can be great investments and allow investors to buy into some great institutional quality properties that most individual investors would not be able to take down on our own.
All but two companies sell these TIC Interests as securities. There is considerable amount of debate in the industry right now as to whether you can sell these interests as real property interests at all. I have my concerns, so becareful if the TIC Broker/Sponsor is selling them as a real estate interest.
I also have a list of TIC Brokers that we have worked with and given 1031 exchange workshops with and I would be happy to provide you with a list of them. I would call a number of them and kick the tires to make sure this investment makes sense for you. I would also be happy to chat on the phone in more detail if you would like, or you are more than welcome to attend our 1031 exchange workshops (FREE) to learn more about 1031 exchanges and/or TIC investments.