Avoiding Complications with Tenants-in-Common Properties

While the TIC sponsor will put together projected incomes and profit and loss statements from the past, it's possible that your property will not provide the income you're expecting. You may not make the return on your investment that you expected to see.

TIC investments also lack liquidity. If you need to get out quickly, you'll find that it's not easy - or even possible - to do in some cases.

That's one of the reasons why it's important that you have another source of income and that you're planning on using TIC properties as a long-term investment.

One of the biggest risks when it comes to tenant-in-common (TIC) properties is exit strategy and liquidity. At the end of the holding period of the TIC agreement, the property must be sold or refinanced. When this happens, it's important that the investor make a gain.

Unfortunately, in some cases the holding period doesn't allow enough time for a gain on the investment. Most holding periods are between five and seven years. In order for an investor to make the desired gain, he or she must make more on the sale than the original purchase price and fees. One way to get money out of the property is to refinance at a lower rate, but that isn't always possible.

In addition, there isn't a secondary market for TIC properties. Normally, if a co-owner wants to get out of the property early, their share is offered to the other existing owners first. Then it can be offered to a larger market of investors.

While there doesn't seem to be a huge problem now with finding buyers because TIC properties are in demand, it's possible that a person who wants to sell their TIC may not be able to find a buyer. If that happens he'll either be stuck with the property or may have to sell it at a loss.

Many investors are finding success in the TIC market at this time. But no investment should be taken lightly. When you're putting your hard-earned money into a property, you need to make sure that you're making a wise choice.

While any investment carries risks, it's important to do everything you can to make sure you minimize that risk. There are some tried and true strategies that will help you make the most of your investments. Tenant-in-common (TIC) exchanges can be a great way to diversify your funds if you take the right approach.

It can't be said enough - plan in advance! It's important to make sure that you've looked at your own finances and your tax situation to make sure that a TIC is right for you and that a 1031 exchange is the best way to do it. You need to put all of your finances in order before you get involved in this type of investment.

Once you begin the process of an exchange, you have a 45-day window period in which to make choices. It's best if you already have your tax statements, personal finance statement, and any other documents in order.

Before you begin an exchange, make sure you have a great team working with you. You need to have an Exchange Facilitator, a tax advisor, and a real estate broker working with you to make sure you make the best possible investment.

You also need to make sure that the properties that you're exchanging meet the requirements of the IRS code that requires them to be held for productive use. If one of the properties doesn't meet the correct requirement, your transaction can be cancelled.

Finally, make sure you trade up with your properties. You don't want to exchange your property for one that has less value. Instead, find a property of equal or slightly greater value.