How Can You Simplify the 1031 Tax-Deferred Exchange with a No-Management Investment

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Tenant-in-Common (TIC) properties can greatly simplify the 1031 Tax-Deferred Exchange because they are pre-packaged and ready-to-go institutional grade investment properties. A newly published book addresses this, and will be one of the exhibitors in the first annual online convention by NAR Commercial Alliance (of the National Association of Realtors).

Investors make the decision every day to sell an investment property and to re-invest in another property. This may because the property they own is depreciated, or because they have a great offer they don't want to refuse, or perhaps they are tired of managing the property. Savvy investors know that they can defer the capital gains taxes by using the 1031 Tax-Deferred Exchange (following the Internal Revenue Code IRC 1031). That decision is easy - but conducting the 1031 and following all of the rules and deadlines is not easy.

The first and most difficult part of the exchange is that the investor must 'identify' the property or properties he will buy within 45 days. (Investors use a Qualified Intermediary or Exchange Accomodator to help accomplish the 1031). Anyone who regularly purchases commercial real estate knows that 45 days is quite short. One must find appropriate property, make the offer, negotiate the contract, then conduct all the tests, studies and due diligence (survey, title, lease and tenant information, building inspections, etc.). Add to this the considerable time to secure bank financing. The appraisal alone could take more than 45 days to obtain.

Enter the Tenant-in-Common (TIC) choice. The TIC sponsor (the company that has purchased and/or is offering the property) has conducted extensive due diligence, has secured the financing, and has produced a hefty document which details everything about the property - the tenants, lease abstracts, the demographics, building details, etc. Any and all reports (property inspection, appraisal, leases, etc.) are available for study. An investor can study any number of TIC choices and make their choice well within the 45 day deadline to identify.

In addition, the TIC investor could potentially diversify the investment into 2 properties or more (depending on how much equity they will have from the sale of their investment property). An investor could put some proceeds into a Bank Tower Office building in Atlanta and the rest into an apartment complex or retail center in Phoenix, for example.

TICs are not for everyone, though. A new book, "Effortless Cash Flow: the ABC's of TICs (Tenant in Common Properties)" discusses the pros & cons of these investments and enlightens the potential investor to all aspects of the industry. The author, Kathy Heshelow, explains that "TICs have offered a real solution to investors who do not want to manage a property but do still wish to stay in the real estate ownership game and like the cash flow." However, she stresses that being educated as to all aspects of these - or any - investment is paramount.

Heshelow is a real estate broker and a securities licensed representative who deals with TICs on a daily basis and is personally invested.

"Effortless Cash Flow: the ABC's of TICs" is one of the exhibits in the first annual online convention by NAR Commercial Alliance(National Association of Realtors). The commercial division hosts the online convention from June 6th through June 12th, 2006 via CommercialSource.com, which is free to attendees.

"I'm excited to have more real estate professionals become aware of TICs and the options for their clients through the book," says Heshelow.

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Kathy Heshelow

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