Wednesday, February 22, 2006

The resale market for Tenant in Common Properties

I constantly get asked "What is the market for reselling a Tenant in Common interest?"

As with most things, it depends.

If you exchange into a tenant in common property, say a large office building, you will own a deeded fraction of that building. You can sell it at any time, assuming of course you can find a buyer.

Since this type of exchange was only sanctioned by the IRS in 2002, the resale market has not been tested to any great degree to date. It is a 5 billion dollar industry, so a lot of people have chosen to go this route to defer capital gains tax and receive an income on their equity.

Common sense rules of real estate still apply. If you have made a good selection of your TIC and the management company is doing a good job, your investment remains an attractive option for another exchange. There are often more exchangers than good properties these days. Wouldn't you want someone else's TIC share if it was performing well?

On the flip side, if you don't do your due diligence, go with a reputable company, choose a management company with a great track record, or buy into a property where the assumptions made by the sellers don't stand up over the long run, you may have a hard time convincing someone else to buy your share.

It's just like any real estate transaction. If the property is bought at a reasonable price, is in a good location, has good management and good long term tenants, it remains an attractive investment. Over the long term, like most good real estate, it will appreciate in value. If the property was overpriced, is poorly run, not in a great location, and has tenants that wreck the place and don't pay their rent, it becomes unattractive to someone looking to buy.

The moral of the story is, do your homework. Hire someone to help you make a good decision and point out the pros and cons. Work with reputable companies who know their business. These concepts apply across the board to all investments.

There are always buyers for good real estate. It's the not so great properties in not so great locations that will have a hard time reselling.

Paula Straub


askpaula@savegainstax.com