I understand that a 1031 TIC Investment has a projected holding or investment period, but what are my options if I need to sell a 1031 TIC investment that I hold earlier?  Can I get out?  Do I call the TIC Broker that I bought it through?  How is it priced? 

Hi Greg:

Most sponsored TICs utilize co-ownership agreements that anticipate the need for early exit. Commonly, the co-ownership agreement will include a right of first offer to other co-owners and/or the Sponsor. However, there is no obligation for the Sponsor or a co-owner to buy an exiting owner's interest, because such an obligation (known as a "put option") would violate one of the rules under Rev. Proc. 2002-22.

Most TIC brokers have clients in need of replacement property at any given time, so often, if another co-owner or the Sponsor does not buy out the interest, the exiting owner can find a buyer through a TIC broker.

Most co-ownership agreements provide a method to value an exiting owner's interest, usually through an appraisal process controlled or coordinated by the Sponsor or an affiliate. 

Co-ownership agreements vary, and often there are fees for getting an appraisal, and a "disposition fee" (a commission for selling the interest), and various other fees. You should always review the offering documents carefully to ensure you understand the costs and risks of walking away before the end of the projected holding period.

Please also note that exiting a sponsored TIC early can have tax and financial consequences that can result in a loss to the investor, so the prudent investor will seek tax and investment advice before putting their interest up for sale.
 

Greg,

I also had a couple of comments from my experience and observations. 

There have been very few situtations since the inception of 1031 TIC investment properties where an investor has attempted to sell his or her 1031 TIC investment property interest.  The majority of those that I have seen to date have been a sale out of necessity due to the death or divorce of the investor and the need to settle the related action.  The sales of the 1031 TIC interests have been relatively easy to date.  However, the over all real estate market and the majority of the 1031 TIC investment properties have performed extremely well over the last few years so that secondary market transactions were relatively quick and efficient. 

Today, the real estate market and the credit markets are changing rapidly, and a sale of a 1031 TIC interest in a 1031 TIC investment property will depend to a larger degree on the performance of the specific 1031 TIC investment property, the market segment and asset class that the 1031 TIC investment property is in, underwriting approval by the 1031 TIC Sponsor and the Lender. 

You should always buy into a 1031 TIC with the investment objective of holding the 1031 TIC interest until the property goes full cycle and is sold.  You can then complete another 1031 Exchange if you so choose and go into another 1031 TIC investment property or you can 1031 Exchange into another real property interest that you locate and acquire through your local real estate broker. 

Greg,

 I am on the front lines working directly with clients purchasing TIC's, so I thought I would provide a few of my thoughts.  First, most TIC offerings project performance of 10-years in the Private Placement Memorandum, but few actually hold the real estate that long.  In most cases, properties have 10-year financing so doing a projection over that period of time makes sense.  With the favorable real estate market we have seen over the past several years it has not been uncommon for a property to go full cycle in as little as two years.  Now that the environment has changed, I think a 5-year time horizon is more realistic.  Remember, the TIC sponsor makes the greatest income at the beginning and the end of the holding period, which gives them an incentive to buy right and manage well so that the property can be sold as soon as possible.

In the event that you are in a TIC and need to sell, your first call should be to your TIC Advisor.  He or she can go over your options.  In most cases the Advisor will work with the TIC sponsor to provide you an idea of the FMV of the TIC interest, taking into account cap rates, comps, and the current NOI of the property.  Once you have determined your selling price, the TIC sponsor will make your intention to sell known to the other TIC owners, who will generally have first right of refusal for a period of 30-days.  In most cases one of the other TIC owners will buy you out and the only fee involved is an administration fee charged by the lender to re-title the interest.  If that doesn't work, the TIC sponsor may buy your interest.  I have also seen a couple of times where the TIC sponsor notifies all the TIC reps nationwide with when an interest becomes available.  This does not happen very often.  I see maybe two or three such cases per year.  If all that fails, you can list your interest in the MLS since it is real estate. 

The bottom-line is that if your property is performing well, it should not be that difficult to sell your TIC interest.  However, don't expect to make big bucks on the sale.  You are much more likely to make big profits by holding for the entire time and selling along with the rest of the group.  I hope this helps.

Tracy Turner, President-TIC Consultants

You may sell a TIC investment property by first offering it to the other TIC co-owners thru the Asset Manager. They may be the logical buyers because they have already purchased the property once.If the other TIC co -owners do not want it the interest can than be sold on the open market thru your real estatebroker or thru the sponsor.

Up to now, the market has been fairly liquid. We have done two such transfers (due to death and financial liquidity needs) very quickly. However keep in mind that there are fairly  high transfer costs associated with this early. transfer This may make it prohibitive for smaller investors.

You should not go into a TIC investment with the thought of getting out early, however the avenues are open to do so if needed.

Lew Savage