An investor can gain valuable assistance in finding a Replacement Property from one of the many companies that specialize in handling 1031 Exchanges and Tenants in Common 1031 Exchanges. These TIC specialists have access to a large number of investment properties and often have completed various levels of due diligence, including price comparisons, disclosures, net income, vacancy reports, etc.
Usually, the sponsor firms have spent enormous amounts of money structuring these real estate offerings to ensure that they meet the IRS requirements for a TIC 1031 Exchange. Sometimes the sponsor ties up a property with a purchase agreement and then prepares the offering documents, often called the Private Placement Memorandum, (PPM), which is then marketed through broker-dealers. A few sponsors close on the property before marketing it but this can be more expensive due to carrying costs.
Evaluating a Registered Investment Representative
- Select a registered investment representative who specializes in TIC investments. This should be done before selling your investment property.
- Evaluate some possible replacement properties. As you do this with your registered investment representative, you should scrutinize the sponsors of each offering. What is their track record? Is the infrastructure of their business organization adequate? Are their principals, staff and management qualified?
- Make sure your investment representative holds a Series 7 or Series 22 license, along with either a Series 63 or Series 66 license. He/she should also be experienced in commercial real estate, and have a proven track record of successful TIC exchanges.
Questions to Ask Sponsor Companies
- Is the sponsor’s program well structured and fair to investors?
- Is the offering put together carefully, legally and mechanically, with the proper disclosures?
- Are the objectives that are outlined in the documents met?
- Are the risks associated with the investment stated clearly?
- Is the program, with its assets, set up with a high likelihood of attaining the objectives?
- Are the projected objectives reasonable in view of the facts?
- What safeguards and reserves are in place?
A Tenants in Common 1031 Exchange allows an investor many choices when looking for replacement properties.
An equity investment of at least $100,000 is usually required, but each property offering will have a minimum that has been determined by dividing the total equity by the possible number of TIC interests.
Each PPM offering should be evaluated, analyzed and compared to other competitive proposals. The past, present and future anticipated expenses, tenant financial information, location and environmental issues should be researched, and include a study of the property’s real estate market area.
