Have you been pursuing long-term capital growth for minimum investment? Do you want to trade a non-performing asset for a high-income-producing property? If so, doing a 1031 exchange on your current property and acquiring a TIC property can be a practical choice.
How Does A 1031 Exchange Work?
To help investors defer capital gains tax on continuing their investment, the IRS had introduced Section 1031. It allows investors to defer capital gains tax on reinvesting the sale proceeds in a like-kind real estate. Upon closing the sale of the previous property, you must identify one or more replacement options within 45 days.
Every 1031 exchange investor gets 180 days to complete their transaction, including the property identification period.
1031 replacement property options are multiple. You can close your 1031 exchange with a DST investment or invest your sale proceeds in a TIC property. Both investment strategies offer long-term capital growth and a steady income flow.
What Is Tenancy-In-Common?
Under Tenancy-in-common or TIC arrangement, up to 35 investors co-own an investment property. A TIC investment is a great tool for small or medium-sized investors pursuing better assets without investing huge capital. Every investor in a TIC gets to own the entire property, which gives them complete control over the asset.
- Opportunity to own better assets – Say, you always wanted to own a premium investment property but never had the required funds. With a TIC investment, you can fulfill your dream of owning a large property on a limited budget.
- Steady income – With a TIC property, you are likely to get prominent tenants with high credit ratings, which mean no risk of defaults.
- Shared risk – The investment risks get distributed among all investors under a TIC arrangement. If the property suffers any damage in a natural disaster, every investor contributes to its repair.
- Name your heir – After your demise (everyone has to die one day), your heir will receive your stakes in the property.
- Be the owner – Even though a TIC investment is all about shared ownership, every investor owns the entire property and not a specific portion.
Planning A 1031 Exchange?
The first step towards completing a 1031 exchange transaction is consulting your tax or financial advisor. Like any other investment, 1031 exchanges are accompanied by financial risks or losses. You must research thoroughly before signing your 1031 exchange agreement.