I am hesitant to buy into the whole Tenants In Common market. My primary concern is that the TIC industry seems to be in it's infancy. Additionaly, I have heard that there are two kinds of TIC investments. Which is preferrable? Buying a TIC as a security or as real estate? Is one safer than the other? How does my exposure differ? Does the sales process differ (in the case I should like to liquidate my investment, early)?

Thank you,

Amy

Hi Amy,

You have raised some very good questions, and I'm hoping that we will get numerous responses to your questions from a number of TIC investment experts that frequent the Exeter Discussion Board. 

TICs were actually started in the early to mid 1990s, but exploded when the IRS issued Revenue Procedure 2002-22 [http://www.exeter1031.com/1031_exchange_revenue_procedure_2002_22.aspx] and then received even more attention when Revenue Ruling 2004-86 [http://www.exeter1031.com/1031_exchange_revenue_ruling_2004_86.aspx] was issued to allow Delaware Statutory Trusts to be used when structuring TIC investment properties. 

You are very right.  The TIC investment property industry is relatively young for the most part and has not really had time to mature and deal with the various problems that will ultimately materialize.  We are likely going to see more challenges in the TIC investment world given the existing market conditions. There are only a handful of TIC Sponsors that have a long-term track record and can say that they have had numerous properties go full cycle. 

You should look for TIC Brokers and TIC Sponsors that have a long track record specializing in what they are doing.  There are a handful of TIC Sponsors that have been doing the same thing for 20 or 30 years, but have merely repackaged their products to conform to the new TIC investment property requirements.  There are also many new entries into the TIC Sponsor arena and you must be careful when evaluating them and their limited track record in packaging and structuring TIC investment property interests.

There are two TIC investment property models.  They can be sold as security interests or as real property interests.  There is another discussion on the Exeter Discussion Board that addresses this issue.  You can read it at http://exeterboard.com/forums/t/34.aspx and post follow-up questions there as well.  There is also a couple of links to articles that discuss the issue in more detail. 

The first and most important point to remember is that whether you buy a securitized TIC or a real estate TIC they are both still real estate.  You have to make sure that the underlying real estate is a good real estate investment.  Do not merely rely upon the Private Placement Memorandum (PPM).  You must do your own due diligence and always personally visit the property.  Never make your investment decision solely on the PPM or offering documents. 

I do not think that you can draw a line as to which investment model is preferrable over the other.  There are differences, and the right choice depends on what is right for the individual investor.  You need to evaluate the business plan, the structure of the transaction, the fundamentals, the financing, review the risks, the load or costs to buy into the TIC (which can vary considerably from sponsor to sponsor and property to property), etc.  This is where a good unbiased investment advisor or financial planner can come in.  You need someone that will help advise you, including talking you out of a property if it is not a suitable investment for you.

You own a fractional interest in a TIC investment property, so being able to liquidate your position will depend on a number of factors, including the property's performance and the over alll real estate market.  If the property is not performing or the market has moved against you it will be difficult to sell your TIC interest.  It would generally be easier to sell a real estate TIC interest as opposed to a securitized TIC interest assuming that all other factors are equal. 

Thank you both for the thorough answers. Very informative.

You are most welcome.  Please keep Exeter 1031 Exchange Services, LLC in mind as your Accommodator for your 1031 exchange transactions.  We look forward to working with you.

Amy

I would suggest you visit the (TICA) Tenant-In-Common Association web site at www.ticassoc.org  It is TICA's position that sales of TIC interests are subject to federal and state securities laws when sold to unrelated persons who will not actively be involved in the management of the property. I have personaly not seen any article by an independant journalist recommending a real estate TIC over a securitized TIC. The sales process with a securities TIC is more comprehensive, and strategic estate planning in nature than a transaction oriented sale more commonly associated witha real estate broker.

Liquidations have been very rare and I would personaly eliminate the TIC option if liquidity is even a remote priority.