| We've all made bad decisions in the past. Don't you just
hate to hear "I told you so" from your friends and family?
Or, maybe you catch yourself saying "If only I'd have...?"
Personally, I'm one of those people who prefers to learn
from someone else's mistakes. If you're at all like me, and
you have thought about doing a 1031 exchange into a tenant
in common (TIC) property, take note. You can avoid making
the 3 Major Mistakes that others wished they knew before
leaping from the frying pan into the fire!
Before I let you in on the secrets, let me briefly
explain what a 1031 exchange into a tenant in common
property is. It's a fairly well-kept secret in and of
itself.
A 1031 exchange is when an investment property owner
sells his current property and exchanges it for a
"like-kind" property of equal or greater value. By doing so,
he defers the payment of capital gains tax and the
consequences of recaptured depreciation.
By exchanging into a tenant in common property, or a TIC,
he becomes a part owner of a large commercial property
managed by professionals, who in turn pay him a monthly
income. It comes with fewer strings than private annuity
trusts, charitable remainder trusts, or an exchange into
another property that still needs your attention and often
drains your wallet. I find that very few individuals, CPA's,
attorneys, or even financial advisors are sufficiently well
versed in the 1031 exchange into a tenant in common
property. It can be a terrific deal!
Those who benefit most from this type of an exchange
usually have several things in common. 1. They own
investment property that has appreciated significantly in
value.
2. They are tired of all the hassles of property
management.
3. They don't want to pay huge amounts of capital gains
tax if they sell.
4. They would like to have a significant increase in
monthly passive income.
5. And, lastly, they still enjoy the relative stability
of owning real estate.
Know of anyone who fits this description? If so, read on.
There are 3 Major Mistakes that can turn your investment
into a nightmare. So, avoid these at all costs when
contemplating this type of exchange.
Mistake #1: Dealing with an investment company that does
not have their act together. If they seem like they don't
know what they are doing, run! Look into their history of
TIC offerings, and ask for referrals from satisfied clients.
Ideally, this should be their only business. Are all their
properties "A" grade commercial buildings, or are they
somewhat less desirable? Ask how they find the properties
and what criteria they use to select them. Quality
properties are hard to find and sell out quickly. In real
estate, the quality properties will remain more desirable,
even when the mediocre properties start to lag. Ask yourself
if you would like to have your office in that building, or
go to see your doctor there, or if you'd shop in that strip
mall.
Note: Also be cautious going the private route and
getting into Limited Partnerships when only one or two major
players make all the decisions. And, unless you have
extensive experience in commercial property, don't get
together a bunch of your friends and choose this property on
your own.
Mistake #2: Choosing an Accommodator that has not done
many, many of these transactions. This Qualified
Intermediary makes sure all the documents and money
transfers meet all the IRS guidelines. They will set up your
LLC. You must use an
Accommodator that you don't already have
a relationship with. Your family attorney or estate planning
attorney may not qualify. The last thing you want is the IRS
sending you a hefty bill for taxes or penalties, or the
whole transaction falling through due to an incompetent or
inexperienced Accommodator!
Mistake #3: Skimping on the property management company.
They are extremely crucial to the performance of your
investment. You will be depending on them to handle the day
to day problems that arise, carry the proper insurance, pay
the property taxes on time, and keep your building fully
occupied and in tip top shape. This company should offer you
a long term triple net lease that has your annual income
percentages spelled out, along with scheduled increases.
There aren't many out there willing or able to do this. Ask
for an accounting of their track record with other
properties, how long they've been in business and for a list
of any judgments brought against them. See if they've ever
requested special assessments, or had any foreclosures. A
good management company is worth its weight in gold. You
want them to make a tidy profit, because their performance
is directly related to your investment stability.
Well, there you have it. Don't be "Penny wise and Pound
Foolish". This is one time that hiring the best will
definitely bring you the most favorable results. It should
truly be a win-win situation for everyone involved.
By avoiding the 3 Major Mistakes for a 1031 exchange into
a tenant in common property, you will be the one saying "I
told you so" as you collect your monthly check and watch
your investment grow!
Paula Straub is a Financial Advisor, Insurance Agent and
Mortgage Loan Originator in San Diego, CA. As a successful
business owner, Paula strives to guide clients to financial
independence in the most timely and efficient manner
possible.
How much would you pay to save thousands in Capital Gains
Tax? I'll teach you for free in a Teleconference that may
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http://www.savegainstax.com
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