Will TICs Soon Be Fair Game For Real Estate Brokers?

I’m a big fan of the concept of TICs.  TICs are Tenants In Common.  Another term that may be used is Syndication.  But the IRS says Tenants In Common so that’s what we will use here.  The practice of TICs however isn’t so great.  At least from a real estate broker’s point of view.

The Problem
The IRS looks at TICs as real estate.  The SEC looks at TICs as securities of a whole.  Both want jurisdiction over the situation.  And therein lies the problem.   (This is a very brief synopsis.  For all the details of how TICs came to be, the road hazards and where we may be going please click this helpful link regarding Tentants In Common.) 

Most people selling TICs will not pay me a real estate commission because they feel that they would be violating SEC/NASD rules and regulations.  And if they take the stand that TICs are real estate and they are ruled to be wrong they open themselves up to massive litigation as well as myself. 

Why The Concerns?
It sort of peeves me that the SEC wants to keep real estate brokers out.  Really.  Who would know more about how to evaluate an income property?  A securities dealer or a real estate agent/broker who works with income properties?  Please. 

Solution
I have heard several times this week from several different sources that there could be a solution around the corner.  It seems the National Association of Realtors has finally been earning some of their money by trying to come to some sort of compromise on this situation with the SEC.  And at least one website is touting that the happening is just around the corner.  There will be an exemption for commercial real estate brokers.  Will I qualify?  I certainly hope so.  I’m not sure how they will regulate that since there is no separate commercial license from the residential license.  A real estate license is a real estate license.

Why This Matters To You
3 choicesSome of you have tons of equity tied up in under-performing properties.  And perhaps you are approaching a time of your life when you’d like to make your “passive income” really passive.  By selling those 5 fourplexes in Olathe you can take the equity and 1031 tax defer it into a TIC.  The TIC would likely be a share of a warehouse or shopping center or oil and gas leases.  Or what if you identified a TIC as one of your three options.  An emergency back-up, if you will, in case the other two income properties don’t work out.  But you won’t hear too much about Tenants In Common until real estate agents start getting paid to tell you about them. 

Face it.  It’s free enterprise at work.  For better or worse.  After all, I study this stuff.  I evaluate the property.  I throw away the bad and bring you the good.  Think all TICs are the same?  Think again.  Why shouldn’t I get paid for my expertise just like if I helped you buy a small shopping center. 

2 Comments

Filed under 1031 Exchange, Legal Issues, Real Estate Investing

2 responses to “Will TICs Soon Be Fair Game For Real Estate Brokers?

  1. Great stuff, Chris.

    Having been the General Partner on many syndications, both for existing improved property, and for development, I’ve also been watching the whole ‘TIC’ thing unfold. It’s all about the money, but then what’s new, right?

    I’m thinking we might have in our near future, a return to the group investments of 20-30 years ago. They’ll be more limited in scope and size than current TICs, but they’ll be more narrowly defined. The result might be the ability for the real estate investor to join a group of very like minded investors — not just kinda like minded.

    They’ll be smaller and better able to take advantage of market moves by being so homogenized in nature.

    We’ve been looking into reviving this approach for a couple years now, and think the time may be about here. The last hurdle, as always, is dealing with the various tax ramifications. Lord, it’s slow goin’ wadin’ through that stuff.

  2. I thought it interesting that the number one concern to TIC investors was avoiding tax on the back end of a 1031. Most are not doing proper due diligence on whatever TIC they are getting in to. That’s why they need us.

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