Many of our clients invest in TIC properties everyday. As I ponder why the baby boomers (1946-1964) on up are so interested in this form of investment I have come up with the top 5 reasons seen from our perspective as an exchange facilitator.

1. Less Management

This if by far the number one reason for the interest in TICs. As our clients age they still want a deeded interest in real estate as an investment, but get less interested in the active management part of Real Estate. They want a lifestyle without the phone calls, interruptions, time and frustration of dealing directly with tenants and the property. Each TIC is a large enough that it employs a property manager who has extensive experience in real estate and takes care of these day-to-day operational matters. Although owning a TIC may not necessarily do better than what you can do personally, it alleviates management concerns and is a far simpler form of real estate management.

2. Less Time Involved In Due Dilligence

Rather than starting from scratch a TIC property already has completed the negotiation process, survey, rent rolls, market, financial projections, etc. and they are ready for our client’s review in the private placement memorandum available when a TIC is sold as a security. Our client’s also believe that the sponsors, the bankers, and the registered representatives have already completed some measure of due diligence on the property so our client’s spend less time going around viewing properties to buy, doing their own due diligence and negotiating with the seller.

3. Less Hassle meeting 1031 Requirements and Financing

In a complex 1031 transaction with multiple properties being sold or purchased quite a bit of time is usually spent trying to determine the 1031 requirement targets for replacing property value, debt and cash. In a TIC purchase, unless you are the absolute last buyer, you can purchase any amount above the minimum that you need to satisfy your exchange requirements, plus the debt is already pre-arranged in non-recourse financing so you don’t have to go find your own banker/broker and apply for appropriate loans to finance the deal.

4. More Diversification

Another convincing reason appears to be diversification. Without having to actively manage the property, our clients tend to buy more replacement properties that they sold and in a far wider range of states than before. They also diversify by property type and get into property types they could not have purchased on their own. Property types include: Class A office buildings, warehouses, apartments, student dormitories, hotels, oil & gas, shopping malls & other retail space.

5. More Access to Higher Grade Properties and Tenants

The typical starting price for a triple net commercial building is in the $750,000 to $1,500,000 range, but through a TIC purchase, our average accredited client is able to enjoy ownership in an institutional-type property of even higher grade with a minimum purchase in the $200,000 to $300,000 range. These properties are also able to attract tenants with greater financial strength and stability than possible for our clients.

Reading the headings it is easy to summarize the top 5 reasons into one sentence – Less management, due diligence and hassles are allowing more diversification in geographic locations and property types with higher grade properties at a lower price point to get in than buying and managing the property on your own.

This article was written by D. Richard Dance at the request of registered representatives selling TIC properties. It is reflective of his observations regarding the clients of 1031 Exchange Coordinators only. For further information that applies to your particular situation please consult with your business advisors. TIC purchases are not suitable for everyone. This handout is not intended to be your only reference source as it discusses some benefits of TICs and not the pitfalls. A subject such as this cannot be fully covered in just a few bullet points on one page.