Tenant-In-Common Solution for 1031 Exchanges

	DEFER CAPITAL GAINS DIVERSIFY PORTFOLIO INSTITUTIONAL GRADE PROPERTIES MONTHLY CASH FLOW MINIMUM EQUITY REQUIREMENTS NO MANAGEMENT HEADACHES

A popular choice among real estate investors seeking replacement property for their IRC Section 1031 tax deferred exchange is Tenant-in-Common ownership , also known as fractional ownership. Under this co-ownership structure, you will own an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and growth. Further, you will receive a separate deed and title insurance for your percentage interest in the property and have the same rights as a single owner. Because Tenant-in-Common opportunities are often "packaged" with management and financing in place, Tenant-in-Common investments may offer efficiencies in the identification, acquisition, financing, closing, and operating stages of real estate ownership.

Furthermore, fractional ownership provides you with the ability to diversify your 1031 Exchange into more than one property and to participate in potentially larger, institutional quality properties. Thus, small investors in one area of the country may participate in large industrial, commercial, and residential property investments all around the country with professional management already in place.

Benefits of a Tenant-in-Common Investment

Tenant-in-Common investments provide simplicity by eliminating active property management headaches. Individuals who are tired of the day-to-day burdens of being a landlord or who own land and would like an income producing property will appreciate the following benefits of a Tenant-in-Common investment:

• Cash flow is generally paid monthly and portions can be tax-sheltered via depreciation pass through and interest deductions. You may also share in the appreciation of the property when sold.
• Minimum equity requirements as low as $100,000 allow you to invest in multiple high quality, institutional grade properties.
• Tenant-in-Common opportunities are often "packaged" with management and financing in place, Tenant-in-Common investments may offer efficiencies in the identification of a 1031 Exchange, acquisition, financing, closing, and operating stages of real estate ownership. All Tenant-in-Common owners receive a separate deed and title insurance for their percentage interest in the property and have the same rights as a single owner.
• National real estate companies that structure these Tenant-in-Common programs acquire (identify and locate, evaluate, arrange financing, etc.), manage (maintain, lease, collect rent, service mortgage), and sell the Tenant-in-Common properties. They have a vested interest in the performance of the property. These companies usually have strong track records and extensive experience in various sectors, types, and locations of real estate.
• Tenant-in-Common investments enable you to replace your exact amount of equity and debt (when applicable) from your relinquished property for your 1031 exchange. In a Tenant-in-Common transaction, accredited investors assume non-recourse (no personal guarantee) financing on the Tenant-in-Common property. Debt on Tenant-in-Common offerings can range from zero debt up to 75% leveraged.
• Tenant-in-Common investments allow you to 1031 exchange your exact equity amount, investors can avoid paying taxes on boot when you cannot replace your TOTAL equity amount in a traditional replacement property.

Tenant-in-Common Agreement

Tenant-in-Common structured offerings are formed with an in-place Tenant-in-Common Agreement. This agreement describes the relationship between the investor and all of the other Tenant-in-Common owners (up to 35). The rights and obligations of the Tenants-in-Common are governed by this agreement.

In addition to the Tenant-in-Common Agreement, offerings are structured with an additional document signed by each Tenant-in-Common owner providing the sponsor with the ability to handle the day-to-day activities of the property. Thus the Tenant-in-Common owners have little required of them in the way of management. This ability is bestowed in two ways:

• Master Lease - a variety of Tenant-in-Common where the Tenant-in-Common Sponsors act as the landlord, or Master Lessor, of the property, collecting rent from the tenant, or Master Lessee, who then subleases the individual suites to the tenants in the master lease.  The sponsor typically oversees the management of the property (leasing, collecting rents, upkeep, etc.) Tenant-in-Common sponsors are paid a fixed rent according to the master lease, typically with possible annual increases. The Master Lessee typically keeps any property net income over the master lease rent amount.

• Management Agreement - Tenant-in-Common investors typically sign an agreement with the sponsor allowing an affiliate company of the sponsor to manage the property for a predetermined period of time, usually needing to be renewed after one year. The Tenant-in-Common Sponsor pays the Management Company a management fee. Normally, the Tenant-in-Common owners receive 100% of the property net operating income after expenses and debt services.

Risks with Tenant-In-Common investments...

Like any investment, Tenant-In-Common investments are not without risk. First, owning fractional interests in real estate may add to the illiquidity of the investment. Currently, there is no secondary market for Tenant-In-Common real estate investments. Second, the costs to acquire Tenant-In-Common interests may be higher than sole ownership, given the expense in making the property available to multiple co-owners in a structured investment. Third, like any real estate investment, the property may depreciate. Fourth, cash flow may be interrupted if a tenant fails to pay rent or a replacement tenant is not found when an existing tenant moves out.