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 How much money is required to participate in a TIC property?
Although the minimum investment amount is different for each property, minimums generally range from $100,000 to more than $1 million. It is important to understand that the minimum investment amount may be flexible, depending on the investor mix. Participation among larger investors enables a TIC sponsor to accommodate smaller investors. Remember, the TIC sponsor's objective is to raise the required equity capital to purchase the property within the allowed number of TIC spaces (limited to 35 according to IRS guidelines). DST offerings do not have the same limitation on the number of investors, which may result in lower minimums.
How much income can I expect to receive?
Although each property is different, it is common for TICs to provide an initial cash-on-cash distribution of 6% to 8% (based on equity invested). Distributions will change over time due to varying lease rates, financing terms and changes in occupancy. Annual cash flow projections are provided in a TIC's Private Placement Memorandum. It is important to understand that these projections are based on a TIC sponsor's estimate of future income and are not a guarantee of performance. Income is generally distributed on a monthly basis. IRS guidelines require that distributions be paid at least quarterly.
What if I want to sell my TIC interest before the other co-owners want to sell?
Although TICs are intended to be long-term investments, IRS guidelines require that you have the ability to sell your interest independent of other investors. To accomplish this you would contact your Registered Representative or the TIC Sponsor to communicate your desire to sell your interest. The TIC Sponsor can assist you in determining the fair market value for your interest. Once you have decided on your asking price, the TIC Sponsor will notify the other TIC owners of your intention to sell (the other TIC owners generally have first right of refusal). If the other TIC owners do not purchase your interest, the TIC Sponsor may purchase it or may make your interest available to other Registered Representatives and their clients. If that is unsuccessful, you can list your interest in the multiple listings, just as you would with other forms of real estate.
Just a couple of things to keep in mind; the lender will generally require the purchaser of your interest to qualify, just as you did when you purchased your interest. This is not a requirement if one of the other TIC owners purchases your interest. Also, there may be an administrative fee charged by the lender to transfer your interest.
As a TIC owner, what information can I expect to receive?
Generally TIC performance is reported on a quarterly basis. Reports provide detailed information on income and operating expenses compared to the annual budget with an explanation of variances. There is also generally a narrative discussing important events such as leasing activity, maintenance programs and local market conditions. Some sponsors also conduct quarterly conference calls, providing TIC owners an opportunity to ask specific questions about the property.
After the end of each calendar year, each TIC owner receives a summary outlining his or her proportionate share of income operating expenses. This information is generally in a format that can be utilized for tax return preparation. Note: a TIC is not a partnership, so you will not receive a K-1.
Major events requiring TIC owner approval will be brought to your attention as needed. Events requiring TIC owner approval include issuance of new tenant leases, loan refinancing, the annual operating budget, annual renewal of the property manager’Äôs contract, and sale of the property. If the property has a master lease (which is common in apartment offerings) you will not be required to approve new leases.
What are my responsibilities as a TIC owner?
For the most part, TIC ownership is passive and requires little involvement on a day-to-day basis. However, each TIC owner is expected to provide prompt responses for those decisions requiring approval. Those decisions generally include leasing, refinancing, budget approval and sale. Most TIC agreements include a clause allowing the TIC sponsor to vote on behalf of a TIC owner if he or she does not respond to an approval request within a reasonable amount of time.
How do I shop for TIC Properties?
Your first step is to contact your TIC Consultants Registered Representative. We specialize in TIC properties and are continually aware of current opportunities from leading TIC sponsors. We will take the time to learn about your specific needs and show you properties that best meet your requirements. If you are involved in a 1031 exchange, timing is critical. We encourage you to start shopping for replacement properties early. Once you find a property you like, we can arrange an on-site tour to gain a first-hand understanding of both the property and the market. We will also help you identify backup properties.
How many investors can participate in a TIC offering?
According to Internal Revenue Procedure 2002-22, there can be up to 35 participants in a TIC property. Husband and wife are considered a single participant. DST's are not subject to this limitation.
What is the TIC Sponsor's role?
The TIC sponsor is a real estate organization that specializes in acquiring, syndicating and managing commercial property on behalf of TIC investors. The TIC sponsor's first job is to find a property that would be acceptable for TIC ownership and place it under contract. Then they coordinate the activities required to bring a TIC offering to the marketplace. This includes conducting extensive due diligence, arranging financing, and preparing a Private Placement Memorandum (PPM). In structuring a TIC offering, most TIC sponsor adhere to IRS guidelines (IRP 2002-22) so that it can be made available to 1031 exchange investors.
Prior to bringing an offering public, due diligence information is made available to Broker/Dealers (the selling group) for review and approval. Once a Broker/Dealer approves an offering, its Registered Representatives (such as TIC Consultants) may present the offering to accredited investors. The goal of the TIC sponsor is to raise the necessary equity capital from investors within the allotted number of TIC spaces (35 or fewer). Once the investor group has been assembled, the TIC sponsor coordinates the escrow and closing process.
After the property is purchased, the TIC sponsor is responsible for managing it, paying distributions to TIC owners, and communicating with TIC owners on an ongoing basis. Normally, distributions are paid monthly and performance reports are generated quarterly. When the TIC sponsor believes the time is right to sell the property, it will make a recommendation to the TIC owners. The TIC owners then vote to determine if the property will be sold. Upon sale, the mortgage is repaid and the rest is distributed pro-rata to the TIC owners (in many cases, TIC owners direct the funds to an Accommodator so another 1031 exchange can be completed).
What paperwork is required to purchase a TIC property?
First, you complete a Purchaser Questionnaire that captures personal information, entity information, investment amount, exchange information (if applicable) and verification that you are an accredited investor. In most cases you will have to provide two years of tax returns and entity documentation (trust or LLC formation papers). Some TIC sponsors also require a good-faith deposit check.
The TIC sponsor will notify you of your acceptance into the TIC offering. Prior to closing you will receive title and escrow documents to complete the purchase. As in any real estate transaction, there are numerous forms to sign and notarize. The staff at TIC Consultants can help you through the entire process, including notary services.
What would prevent me from being accepted into a TIC offering?
In most cases, a lender will not approve an investor who has had a bankruptcy within the past 10 years or a felony conviction. In addition, each investor must demonstrate that he or she is accredited based on net worth or income ($1 million in net worth, $200,000 in income as an individual or $300,000 in income as a household).
Why do I need a Registered Representative?
Because TIC offerings are considered a security, they are offered through licensed securities representatives rather than real estate brokers. Your TIC Consultants Registered Representative has access to the TIC market and is continually updated on offerings from leading TIC sponsors. One of the most important roles of your Registered Representative is to advise you, based on your specific investment needs.
Do I have to be a 1031 exchange investor to participate in a TIC?
Although TIC ownership has gained popularity because it solves many of the problems that facing 1031 exchangers, investment is not limited to 1031 exchanges. A TIC investment is appropriate for any accredited investor seeking to participate in high quality commercial real estate.
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