![]() ![]() As a result, the Tenant-In-Common structure began to be packaged more regularly as a security in early 20. However, the IRS-imposed time restrictions on the 1031 exchange (45 days to identify property 180 days to close) became difficult for investors to meet. In the past 9 years, the Tenant-In-Common structure has been packaged as an investment security, and it has become common for individual real estate investors in completing their 1031 exchanges.Īs the nation's real estate market heated up through the early to mid 2000s, 1031 exchange investing became even more popular. ![]() They are popular because of their tax-deferred exchange qualifications. They provided real estate investors an alternative to partnerships. Tenant-In-Common investment structures began in the 1600s in England. Tenant-In-Common (TIC) ownership references a way of taking title to real estate with each owner possessing an undivided, fractional interest in an entire property. For most individuals with a net worth of $30 million or less, the sole-ownership investment structure greatly limits the level of diversification possible. Institutions with investable, available assets in excess of $1 billion are able to build relatively diversified portfolios in both small and large commercial real estate. Most larger, institutional-type commercial assets in stronger locations command purchase prices in excess of $15 million with down payments in excess of $6 million.įor institutional and family office clients with a net worth in excess of $30 million, diversification into smaller commercial real estate via the sole-ownership structure may not be an issue because the available investment funds can be significantly greater. With many larger, commercial properties, the sky is the limit on both purchase price and down payment requirements. In the case of smaller commercial real estate, such as NNN retail properties with national tenants, sole-ownership typically requires a total purchase price of $1,000,000 to $3,000,000 and a down payment of $500,000 to $1,250,000. One limiting factor of sole-ownership is that is does not facilitate diversification for most higher- net-worth real estate investors. Sole-ownership is best for clients who want to manage and control real estate directly and who have a significant net worth with plenty of liquid funds to purchase and properly maintain larger real estate assets. Typically, to obtain financing for sole-ownership real estate, owners must sign for recourse debt-which obligates them to pay the debt, regardless of what occurs with the asset. The owner is able to make all of the property-level decisions but is also responsible for the liabilities of the property. The benefit and burden of sole-ownership property is direct control/responsibility. If structured properly, sole-ownership investment real estate qualifies for a 1031, 1033, or 721 tax-deferred exchange. ![]() Sole-ownership is the most direct and controlling form of ownership, whereby the owner holds direct title to the entire asset and is able to make all decisions regarding its use, financing, and disposition. Each of these investment structures can be implemented with the same real estate assets: It is only the investment structure that changes, not necessarily the underlying real estate. This article will provide a summary description of each primary investment structure and its particular application to the individual investor. Investors are able to utilize many different types of investment structures for real estate ownership to meet their tax deferment and investment objectives. Sole-ownership, however, is only one of the multiple investment structures that accommodate real estate ownership and investment participation. Real estate ownership is often thought of only in the context of owning an entire building or portfolio of buildings outright. ![]()
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