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Can you do a Tenants in Common 1031 exchange?

Diversifying your investment portfolio is important, and real estate can be a great way to do it. But if you’re worried about having enough money to buy an investment property on your own, consider using a tenants in common 1031 exchange agreement. This will let you invest in property with other people while still allowing property owners to defer capital gain taxes through 1031 exchanges.

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What Is the Tenants-in-Common Structure?

The tenants-in-common (TIC) structure is a type of co-ownership in which each tenant owns a share of the property. The tenants can be individuals, corporations, or other entities and hold equal or unequal shares.

The key difference between a TIC and other types of co-ownership is that the tenants have the right to sell or transfer their share of the property. This flexibility makes the TIC structure popular for investment purposes.

Overall, the TIC structure is a popular way to invest in real estate, but it has challenges. For example, if one tenant wants to sell their share, the other tenants may be forced to buy them out or find a new buyer. There can also be disputes between tenants over how to manage the property.

Can Tenants-in-Common Engage in 1031 Exchanges?

One of the key advantages of investing in real estate is that you can defer commercial real estate capital gains tax through 1031 exchanges. This tax-deferred exchange allows you to sell an investment property and reinvest the proceeds into a like-kind asset so long as certain conditions are met.

Tenants in common can take advantage of 1031 exchanges. The TIC structure is often used specifically for this purpose. By pooling resources with other investors, you can buy a more expensive property than you could on your own and still defer capital gain taxes.

Of course, there are some challenges to consider. For example, you’ll need to identify a property that meets all the requirements of a 1031 exchange within a certain period of time. You’ll also need to ensure that all the tenants are on board with the exchange.

Overall, the TIC structure is a great way to invest in real estate and defer capital gain taxes. However, it’s important to consider the challenges and weigh them against the potential benefits before making any decisions.

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Pros of Using a Tenants-in-Common Structure for a 1031 Exchange

There are several reasons why you should consider using a tenants-in-common (TIC) structure for your 1031 exchange.

  • First, it can offer you greater flexibility regarding the property types you can invest in. With a TIC, you can purchase an undivided interest in various property types. This allows you to diversify your portfolio and hedge against market fluctuations.
  • Additionally, a TIC property offers more favorable tax treatment than other types of investment property. The interest you hold in a TIC is considered personal property for tax purposes, which means that it is not subject to capital gains taxes.
  • Finally, a TIC agreement can provide you with the ability to raise capital through the sale of partial interests. This can give you the funds you need to improve the property or make additional investments.

Cons of Using a Tenants-in-Common Structure for a 1031 Exchange

One potential downside to using a tenants-in-common (TIC) structure for a 1031 exchange is that it can be more difficult to find a buyer for your interest in the property.

In a TIC arrangement, each owner has an undivided interest in the property, which means that each owner has the right to do what they see fit. This can appeal to some potential buyers, but it can also be a turnoff for others if goals and intentions are unaligned.

Additionally, TIC arrangements often require owners to sign an agreement that outlines how the property will be maintained and managed. This can add an extra layer of complexity to the sale process.

Finally, TICs typically have shorter terms than other types of investments. There is less time to sell the property before it must be returned to the original owner. For these reasons, it is important to consider all potential drawbacks of using a TIC structure for a 1031 exchange before making a final decision.

How Point Acquisitions Can Help You

Point Acquisitions is a real estate firm focusing on value-add properties and opportunistic deals that generate greater returns for institutional investors.

It is our job to make selling your business property as easy and efficient as possible. We evaluate multiple properties using different data-based methods, so you don’t have to.

We also have a wide network of reliable partners that we can connect you with, giving you more options.

If you’re interested in exploring the possibility of doing a 1031 exchange using a TIC structure, please get in touch with us today. We would be happy to answer any questions and help you find the best possible solution for your needs.

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