1031 Exchange Blog - 1031 Exchange Information

Listen to our Podcast on Tenant in Common (TIC) Investing Benefits Potential Access to Institutional Quality Real Estate Investors who choose to invest into a TIC program as a 1031 exchange replacement property or as a direct investment are given the opportunity to invest in a caliber of real estate they typically may not be able to acquire on their own. For example: an individual investor with $500,000 may not be able to afford a 500 unit, class “A” apartment complex in a growth market. On the other hand, 25-30 accredited investors with $500,000 each have the ability to acquire such a property managed by an experienced national property management company. Passive Ownership Investment Many investors have owned property for a long time, realize the tax savings a 1031 exchange can provide, but are tired of the daily headaches of managing investment property. TIC investors are relieved of the day-to-day management hassles of sole ownership. They may have to approve major decisions such as a lease renewal, but in general TICs are a passive form of ownership that can free up time for other endeavors. The real estate sponsor will find the property, conduct its due diligence, arrange financing, manage the property, negotiate leases, distribute income, provide accounting reports and execute the final sale. Investor will also typically receive quarterly statements, monthly conference calls, and are always welcome to tour the property. Potential for Income and Growth Like any form of real estate, there is no guarantee of positive or steady income, but investors should choose a sponsor with an experienced management team with a track record of performance. The primary goal of most real estate investors is to generate income with the potential for growth. Experienced sponsor strive to do increase the investor’s annual yield and increase the market value of the property at same time. Financing With today’s difficult lending environment, borrowing money for real estate is harder than ever. Well capitalized TIC sponsors may have the relationships and experience to free an investor from the difficult lending process. The established TIC sponsors in the industry have the ability to secure pre-arranged financing and typically receive more competitive terms than what’s available to an individual investor. Diversification Depending on the equity amount an investor is looking to exchange or the cash an investor has to invest, TICs can provide an opportunity to diversify a real estate portfolio. Typically, at any point in time there are several TIC properties available around the country for an investor to consider. It may be possible to exchange into a medical center, an apartment complex and an office building in different geographic locations throughout the country. Risks As with any investment in real estate, there are risks associated with TIC ownership, including fluctuations in the real estate market that may impact the value of the property. The following risks may also be associated with investment: illiquidity, economic risks due to vacancy rates, default if unable to pay mortgage and possible loss of principal. TIC ownership requires unanimous approval to take major action, such as a re-finance or sale. Obtaining unanimity may be difficult when 10 or 20 investors are involved. It is not possible to address all relevant risk factors in this forum. Risk factors are outlined in the Private Placement Memorandum for each offering. Investors should thoroughly understand all risk factors and discuss them with their financial representative prior to investing in a 1031/TIC offering.

By now everyone is well aware of the economic turmoil that is currently facing our country. From our prospective investor confidence is “way down” and many investors are either sitting on the sidelines waiting for a recovery or are “staying the course” and waiting for their stock portfolios to hopefully rebound. In our minds capital must continue to move to create an opportunity for growth and get the economic engines cranking again. Needless to say many of our investor-clients are constantly seeking guidance from us as to where to turn. The two most common questions we hear are: What can you do? And where do we go from here? As an effort to better inform and educate our investor-clients and prospective clients alike on which non-correlated stock market investment strategies might be available during these trying times, 1031 Alternatives Group is offering investors a “Roadmap to Recovery Series.” Though our crystal ball as to when the recovery may begin may be no better than anyone else’s, over the next few months we will share with you a variety of investment opportunities that have proven to be time-tested and successful to investors. Please note past performance is not indicative of future returns. The strategies that 1031 Alternatives Group represents are hard-assets, again do not correlate with the stock market and have generally been “known to few but beneficial to many.” Our first investment is the KBS REIT II. The KBS REIT II is a public-non traded real estate investment trust (REIT). Real Estate Investment Trusts – REITs pull the capital of many investors to acquire or provide financing or equity for real estate properties. They permit investors to invest in a diversified real estate portfolio managed by a professional management team, and the structure pays out at least 90% of its taxable income to those investors. REITs avoid federal “double taxation” treatment of income that results from investments in other corporations because REITs are generally not subject to federal corporate income taxes on its net income if it complies with certain federal income tax requirements. Generally, REITs intend to provide investors with an opportunity to own a select portfolio of income-producing properties. Objectives may include income, diversification, and potential for capital appreciation through investing in commercial office, warehouse, retail, medical office, hotel, marina, assisted living, self-storage, or multi-family real estate. The KBS REIT II employs a unique hybrid investment strategy – focused on both equity and debt investments – with approximately 70% of invested capital in core real estate assets while the remaining 30% targeted at potentially higher yielding structured debt investments and value added properties. This strategy is intended to provide increased risk management as well as broad portfolio diversification by property type, geographical region, investment size and investment risk. Below is a highlight sheet of one of the recent investment in the KBS REIT II as well as a link to the SEC 8k filing that further discusses the investment. This offering is only made by prospectus. Individuals should read the entire prospectus to understand fully all of the implications and risks of this offering. Below is a link to the prospectus, if you are unable to open this link, please call our offices directly 866-405-1031 and we will send one to you. Read the KBS REIT II Prospectus Click Here to Review KBS REIT II Highlight Sheet on the Northern Trust Debt Investment Click Here to Review the KBS REIT II SEC 8k Filing To obtain a prospectus on this investment program or any other investments that we may offer, please feel free to contact our offices directly 866.405.1031. Risks: As with any investment in real estate, there are risks associated with REIT ownership. It is not possible to address al relevant risk factors in this forum. Risk factors are outlined in the Prospectus for each offering. Investors should thorou

Listen to our Tenants in Common Second Quarter Update Podcast

Listen to our New Podcast on - 5 common questions pertaining to 1031 Tenant In Common (TIC) investments 5 common questions pertaining to 1031 Tenant In Common (TIC) investments: I heard partnerships do not qualify as “like kind” property for a 1031 exchange. How does the purchase of a Tenant In Common (TIC) interest differ from a partnership? The most profound reason is a 2002 IRS Revenue Procedure ruling. This ruling, Revenue Procedure 2002 dash 22, essentially set forth the guidelines whereby a TIC would be recognized as real estate, not as partnership. Hence, it could be used in a 1031 tax-deferred exchange. There was a small group of companies, mostly in southern California, offering TIC properties in the 1990’s as passive investment options for their clients. However, since the landmark ruling in 2002, TIC offerings have grown into a multi-billion dollar industry. How is a Tenant In Common (TIC) property structured? A Tenant In Common (TIC) investment represents co-ownership of real estate by two or more investors and is a form of holding title to real property. TICs permit up to 35 small to midsize investors to own an undivided fractional interest in a large, potentially institutional quality property/properties. TIC investors are on deed and considered a direct owner of the underlying real estate. TIC owners share “pro rata” in the potential income, tax benefits and capital appreciation of the property. Since the Internal Revenue Service issued guidance in 2002 (Rev. Proc. 2002 dash 22), TICs have become the preferred investment vehicle for real property investors who desire to defer capital gains taxes via a 1031 exchange and own property without the day to day management headaches. Who is a Tenant In Common (TIC) “Sponsor” and what role do they play? The TIC sponsor is a real estate firm who usually negotiates the purchase of the property, arranges the financing and distributes the potential income to the TIC investors. There are several key elements to consider before you choose which sponsor to turn your money over to for your 1031 exchange replacement property. The experience of the sponsor is extremely important. Typically, a sponsor with a solid track record and several years of experience can give an investor greater confidence than a new sponsor just now trying to tap into this growing, competitive market. An investor should also examine the experience of the key personnel of the company to determine how effective these individuals have been in acquiring, managing and eventually selling institutional quality properties in various real estate climates. For a sponsor to be most effective, they must demonstrate that they are committed to the longevity of the investors they serve. Can I contact my realtor to purchase a Tenant In Common (TIC) investment? Since 2002, when the IRS issued official guidance in Revenue Procedure 2002-22 on how Tenant In Common (TIC) investments would qualify for replacement property under Section 1031, the TIC industry has exploded into a multi-billion dollar a year business. However, since 2002, the vast majority of TIC investments have been sold through the securities industry by licensed securities representatives and broker-dealers, not through the traditional means of licensed real estate professionals. There is pending legislation with the National Association of Realtors and the SEC which would permit realtors to get involved. Can I do a 1031 exchange into more than one Tenant In Common (TIC) property? Yes. Depending on the equity amount and other factors of your individual exchange, you may have the ability to exchange into multiple TIC properties. This can potentially allow you diversify your investments by asset type and geographic location. For example if you sold a property for $1.5 million you could potentially acquire an apartment building in North Carolina, an office building in Texas and a shopping center in California. Subscribe to our iTunes 1031 Exchange Podcast

We have the answers. Listen or watch our podcast on 1031 Exchange 5 common questions. If you have your own questions then give us a call 866-405-1031 Listen to 1031 Exchange 5 common questions. Watch the 1031 Exchange 5 Common Questions Video.

Do you want to know the basics about Tenant in Common Investment Properties? Listen to our Podcast, watch the video or read the transcript below. Tenants in Common Basics - Podcast Subscribe to our iTunes 1031 Exchange Podcast Tenant In Common (TIC) Investment Properties Welcome to the 1031 Alternatives Group podcast on Tenant In Common (TIC) Investment Properties A Tenant In Common (TIC) investment represents co-ownership of real estate by two or more investors and is a form of holding title to real property. TICs permit small to mid-size investors the ability to own an undivided fractional interest in large, institutional- quality properties, such as office buildings, medical office, shopping centers and apartment complexes. TIC investors are on the deed and considered a direct owner of the underlying real estate. However, each Tenant In Common (TIC) investor or co-owner is not involved in the day-to-day management of the property. Each TIC investor enjoys his or her “pro rata” share of the net income, tax shelters, appreciation, and share of the proceeds at the property’s resale. Tenant In Common (TIC) properties are passive income vehicles that typically provide a monthly cash flow to investors. These are not partnerships and TIC investors have voting power on key decisions. Even though a large amount of equity has been placed into Tenant In Common (TIC) investments to date, in various ways TICs have been an unknown investment option to many investors. Many of the earlier investors resided on the West Coast of the United States, but more and more investors across the country are becoming aware of the potential benefits TICs have to offer. The most powerful reason TICs have grown in popularity can be attributed to a 2002 Internal Revenue Service (IRS) Revenue Procedure ruling. This ruling (Rev. Proc. 2002-22), essentially set forth the guidelines whereby a TIC would be recognized as real estate, not as a partnership. Hence, it could be used in a 1031 tax-deferred exchange. TICs have become the preferred investment vehicle for real property investors who wish to defer capital gains and depreciation recapture taxes via a 1031 exchange and own real property without the management headaches. Potential Benefits of Tenant in Common Investments: Defer 100% of capital gains tax Defer depreciation recapture tax Relief from property management headaches Upgrade to potentially institutional quality real estate Potentially increase current income & capital appreciation Diversify real estate investment holdings by asset class Identify quality replacement property solutions during the stringent 45-day window Geographically diversify real estate holdings Non-recourse financing in place to meet 1031 leverage requirements Cash flow from properties may be partially sheltered by new depreciation schedule. Risks of Tenant in Common Investments: As with any investment in real estate, there are risks associated with TIC ownership, including fluctuations in the real estate market that may impact the value of the property. The following risks may also be associated with investment: illiquidity, economic risks due to vacancy rates, default if unable to pay mortgage and possible loss of principal. TIC ownership requires unanimous approval to take major action, such as a re-finance or sale. Obtaining unanimity may be difficult when 10 or 20 investors are involved. It is not possible to address all relevant risk factors in this forum. Risk factors are outlined in the Private Placement Memorandum for each offering. Investors should thoroughly understand all risk factors and discuss them with their financial representative prior to investing in a 1031/TIC offering. With proper planning and by working with an experienced industry professional well versed in the niche field of 1031 exchange tenant in common investments an investor has the ability to develop a well-diversified, less-management intensive real estate portfolio, and is able accomplish these o

Watch our new 1031 exchange video on - What real estate professionals need to know about the National Association of Realtors (NAR) Recent Exemption Request to the SEC on Securitized Tenant in Common (TIC) Transactions

Listen to our latest 1031 Exchange Podcast on What Real Estate Professionals Need to Know about the National Association of Realtors (NAR) Recent Exemption Request to the Securities and Exchange Commission (the SEC) on Securitized Tenant-In-Common (TIC) Transactions. Subscribe to our iTunes 1031 Exchange Podcast Read the 1031 Exchange Podcast Transcript - Since 2002, when the IRS issued official guidance in Revenue Procedure 2002-22 on how Tenant In Common investments would qualify for replacement property under Section 1031, the TIC Industry has exploded into a multi-billion dollar a year business. However, ever since 2002, the vast majority of TIC investments have been sold through the securities industry by licensed securities representatives and broker-dealers, not though the traditional means of licensed real estate professionals.

Are you interested in learning about the 1031 Exchange process? Our new podcast series will educate you on the 1031 Exchange process. Listen to our new edition on 1031 Exchange Explained. 1031 Explained - 1031 Exchange Podcast Subscribe to our iTunes 1031 Exchange Podcast Download 1031 Exchange Explained in .wmv Or watch the 1031 Exchange Explained Video If you have any questions that you would like The 1031 Alternatives Group to answer please email them to podcast@1031alternatices.net. 1031 Exchange Explained - Podcast text Welcome to the 1031 Alternatives Group podcast on “The 1031 Solution…a tax deferral strategy for highly appreciated real estate.” If your investment real estate is currently highly appreciated due to years of ownership, and perhaps you have depreciated your property completely. Or maybe, your property is management intensive, you are under or over diversified, and your property is just not providing you enough cash flow….then maybe it is time to consider some options. As an investment property owner, you have several options to choose from: You can simply do nothing. You can sell your property, pay the taxes and reinvest the net equity into standard investments such as stocks, bonds or mutual funds. Or better yet, you may exchange your property for “like kind” real property utilizing IRS Section 1031 Exchange to defer your tax liability. Or you can exchange your property via a 1031 exchange into professionally managed property by utilizing a tenant in common 1031 exchange. Now let’s take a more in depth approach to IRS section 1031 exchange.

Listen to the new 1031 Exchange Podcast If you would like your questions to be answered on our next 1031 Exchange Podcast email them to podcast@1031alternatives.net. Thank you for tuning in to the 1031alternatives podcast on 1031 exchange investing. We will be discussing today NNN vs. TIC: Where should your 1031 money go? There’s a lot of investors out there seeking replacement property for their 1031 exchange, but can’t decide on whether to go with a single-tenant NNN (triple net) property or a Tenant In Common (TIC) property. Some of the arguments discussed below make it pretty clear why TICs are becoming more and more popular. TICs are passive income properties that require no daily responsibilities and can free up your time to do other things besides fixing toilets and dealing with tenants. Not to mention, they have the potential to give investors a competitive annual income (paid monthly) which could be partially tax-sheltered due to a new depreciation basis and mortgage interest deductions. Yes, TICs can qualify as replacement property for a 1031 tax-deferred exchange (IRS Rev. Proc. 2002-22). However, many investors who may not be familiar with TICs, or 1031 exchanges in general, underestimate how much easier and simpler they are to acquire than many other types of real estate. Once an investor sells his property, he only has 45 days to “identify” properties that he would like to acquire in a 1031 exchange. And as most seasoned real estate investors recognize, it can be extremely difficult to find, negotiate, study, and buy an investment property and arrange financing in these short time frames. TICs may reduce this dilemma because they are prepackaged and ready for purchase almost immediately. TICs provide an exclusive opportunity for investors with little equity to get into institutional-grade properties. Some TIC offerings require minimum equity amounts as low as $100,000 to $300,000 (varies from property to property). In most cases, if you wanted to leverage into a single-ownership property with roughly $100,000 to $300,000 to work with, you could probably purchase a commercial property in the $300,000 to $950,000 price range (depending on the tenants in place, the type of building, and your credit for a bank loan). In this kind of price range, commercial properties usually have local tenants or franchises of national tenants, depending on the market. These properties may demand management involvement and are probably not institutional-grade. NNN (triple net) properties have been common for 1031 investors for a long time and some deem them as viable option of no-management investment property. A NNN property typically has a single tenant such as a Burger King, Applebee’s, 7-Eleven, Starbucks, etc. The lease term is usually long (15-20 years). In a NNN lease, the tenants pay for everything regarding the property including rent, taxes, insurance, maintenance, utilities, and so forth. The guarantee could be corporate (desirable) or franchisee (less desirable but depends on the size of the franchisee). The typical price range is about $1.2 million to $3.5 million. For higher rated tenants, such as Walgreen’s, CVS, Wal-Mart, Best Buy or Home Depot, the price can reach $5 million or higher. We’ve already concluded the fact that most NNN properties are not going to be institutional quality but they can provide a management-free investment. On the other hand, a lot of investors prefer multi-tenant investments to reduce risk. Think about it. If that single tenant leaves your building, breaks a lease, or goes out of business, you have no cash flow and will need time to figure out what to do while continuing to pay debt service. If one of the “multiple” tenants leaves in a TIC, you may have a reduction of cash flow but all of your “eggs are not in one basket,” like a NNN property. So, getting back to that same $100,000 to $300,000 in equity, you have the capability to own a piece of a Medical Office Building or a Class “A” Apa