Seeking Alpha

Soreide Law Group's  Instablog

Soreide Law Group
Send Message
Soreide Law Group, PLLC, is a securities litigation firm that is committed to helping victims recover financial losses due to fraudulent or negligent conduct on behalf of stock brokers or financial advisors. We are able to represent investors nationwide in the handling of their securities... More
My company:
Soreide Law Group PLLC
My blog:
Securities Lawyer Blog
  • Tenant-In-Common Or "TIC" Investments - Things To Consider Before Investing 0 comments
    Feb 1, 2013 11:41 AM

    Many real estate investors are attracted to TICS for the purported tax savings through the like kind exchange provisions in the IRS code Section 1031, which allows for the deferral of capital gains. Up until 2013, the capital gain rate was only 15%. Investors need to calculate the net amount of real estate that they are actually acquiring when they buy a Tenant-In-Common investment because many times it is less than 80% and the investor would net more money by paying the taxes.

    Another factor to consider is that a TIC investment is really just a creative way to finance a real estate transaction that results in 1031 investors acquiring significantly more real estate than they need to accomplish the like kind exchange. For example if an investor sells 2 multi-family units and has $500k in proceeds, all the investor needs to do is purchase $500k or more in like kind real estate to qualify under section 1031. However, many TIC deals are highly leveraged and the $500k they use to buy into the property is usually encumbered by a pro rata share of a mortgage, which is typically 3 times the investment and the investor will end up with 4 times the amount of real estate they need to effectuate their 1031 exchange.

    Securities Lawyer, Lars Soreide, says, "One of the errors investors make in TIC cases is to assume that the unit value of the investment equals the property value divided by the units." When TIC cases are litigated, "many of these cases bog down in property valuation when in reality the issue in not the property value but the investment value, which is next to worthless even if the property has residual value. Think of this way, who would buy a unit in this investment given that the purchaser would have to take on 150% on additional debt, give up all property rights to become a tenant in common that is worthless as collateral and cannot be turned into cash? Given the structure of ownership with loans with covenants signed by the sponsor and cross collateralized usually, property value is secondary in these cases." In many instances these investments are sold by a stock broker or financial adviser because a Tenant-in-Common Investment is a security. In a FINRA arbitration, "often Respondents/Defendants put on an appraiser to prove the property value, but there is an objection on relevance of this testimony because the appraiser does not opine on the market value of the security on the notional value of the unit which is usually not much at all if anything," says Soreide. It is "critical to obtain the principal loan documents and assumption agreements to ascertain how encumbered and how much real estate you actually own."

    Soreide Law Group represents investors nationwide in TIC cases before the Financial Industry Regulatory Authority. More information on TICs and FINRA Arbitrations can be found on http://www.securitieslawyer.com.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To Soreide Law Group's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.