Castle-NNN: Making Money in Real Estate
Making Money in Real Estate
Think Outside the Box - Options to 1031 Exchange
Let's talk about Tenants-In-Common, or "TIC's" as they will be referred to for simplicity. A "TIC" is a fractional interest in real estate with ownership evidenced by a recorded deed of trust. You share in your portion of appreciation, depreciation and debt payment, if applicable. Your money is pooled together with other people's money facilitating the purchase of large dollar investment properties, i.e. commercial buildings, industrial complexes and popular condominiums projects cropping up in Las Vegas, Nevada.
For the enormous number of baby boomers who are retiring (or retiring early), TIC's are a viable, easily managed investment vehicle providing diversity while spanning real estate markets. With the aftermath of 9-11, stock market sack stories (remember Enron?), lack of certainty in Social Security and folks living longer; creative solutions are needed for Boomer's who have become accustomed to a high level of living. Having spent decades accumulating wealth from rentals, they now want to be free from the day-to-day drudgeries of real estate management. They want less tenants, late (or eviction) notices and more time for travel, golf and time off!
So, how does a TIC come into play as Boomer's head blissfully into their golden years? Let's journey down the lane of a Tenants-in-Common experience with husband and wife, Stuart and Mary, who purchased a duplex for $150,000 more than 15 years ago. The current rental income is $1,500 per month (after expenses) and today's market value is more than $750,000. Based on that value, they're getting approximately a 2.4% return and they're beyond weary of the day-to-day hassles of rental management - let alone that rate of return. They dearly want to change investment vehicles, but how?? A 1031 Exchange is not on the radar because as we know, with current resale prices, rental properties that generate a good (or break even) return in California are a rare commodity. Stuart and Mary want and need to defer taxes on the sale of the property while still generating a monthly income from the sizeable appreciated gains.
What to do with that sizeable golden nest egg? The attractive attributes of a TIC are the ability to shelter gains, preserve capital, leverage purchasing power and invest in diversified properties in under-valued geographical areas. With potential returns of 6 – 7% +, long –term leases with uncapped appreciation and possibly best of all ... no pesky tenant dilemmas; things get pretty exciting!
It is important to step back now for a moment and understand the Who's, How's and Why's of those providing, managing and selling Tenants-in-Common properties. Stuart and Mary, having worked hard to make and keep their money hardly want to throw it against any wall and see where it sticks! With appropriate estate planning, they are also able to take advantage of multiplied methods to shelter future gains for their children.
After careful consideration, our husband and wife team decide to take their proceeds from the sale of the duplex and divide it - $380,000 goes into a commercial TIC located in Texas and another $350,000 in a Las Vegas condominium project. Their projected combined rate of return is 7.25% and their annual yield approximately $54,000.00!! That's a far stretch of road from their previous annualized projected $18,000 yield from duplex ownership. Stuart and Mary are justifiably pleased with their new investment road and especially pleased that it provides them with the luxurious freedom from property management hassles.
In closing, Tenants-in-Common opportunities are a growing, changing and exciting investment option. One to be considered in your financial journey.