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    • Inland Equity Advisors

    1031 Replacement Properties
    Group Ownership / Single Ownership
    Co-Ownership Commercial Income Properties
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    We offer high-quality, high curb-appeal properties that are most likely to produce stable cash flow and future appreciation. Annual cash-on-cash returns typically between 6-9%, paid on a monthly basis.

    More TIC information . . .

    Ray Kroc

    By Tom Andros | March 6, 2008

    “If you work just for the money, you’ll never make it, but if you love what you’re doing and you always put the customer first, success will be yours.”

    Ray Kroc (1902-1984)
    American businessman, founder of McDonald’s Corporation

    Topics: Quote Du Jour | No Comments »

    Tenant-in-common (TIC) deals offer tax breaks, eliminate management headaches - How Small Investors Can Get Into Big Real Estate

    By Tom Andros | March 4, 2008

    By Matt Hudgins  www.SmallBusinessReview.com/

    Tenant-in-common deals offer tax breaks, eliminate management headaches

    In many parts of the country, small business owners have had a front-row seat for the commercial real estate boom. As owners or renters, they have seen values of office and industrial property soar. A lucky few have cashed in—by selling long-held buildings. But most probably figured they couldn’t play this game.

    Frank Schmidt, a small business owner in San Jose, Calif., knew better, because his company, Schmidt-Prescott Group, is a real estate appraisal firm and he knew about something called Tenant In Common (TIC) financing, a relatively new concept in commercial real estate that lets small investors pool their assets to buy major properties. Often, they get into these tax-advantaged structures by selling their own property.

    In 2003, Schmidt joined a TIC that bought Heritage Corporate Center, a business park in Santa Fe Springs, Calif., for $57.3 million. By the time the property sold this spring—for $84.2 million—he’d received an annualized return of nearly 57%, more than doubling his money.

    “As a single player, you just could never afford a $75 million or $100 million property,” Schmidt explains. “For the small guy, the good thing about these TICs is you can get into institutional properties.”

    TICs Swell

    The TIC business began in the late 1990s as a way for small investors to pool their capital in so-called 1031 exchangeable properties. Under Section 1031 of the Internal Revenue Service code, an investor can defer capital gains taxes from the sale of real estate or other assets if the proceeds are invested in a “like-kind” property within 180 days. Until 2002, however, the TIC business was on shaky ground because the 1031 rule forbade exchanging real estate interests into partnerships. But in March of that year, the service spelled out 15 rules under which TICs could maintain non-partnership status and enjoy 1031 benefits: There can be no more than 35 partners, for example, and investors had to meet wealth requirements: $1 million in net worth or annual income of $200,000 for at least three years (or $300,000 per year for a couple).

    Since then, the growth chart of the TIC industry has been nearly vertical, zooming from $167 million in invested capital in 2001 to $1.8 billion in 2004 and $3.2 billion last year, according to Omni Brokerage Inc., a TIC sponsor based in Salt Lake City. At the same time, the number of TIC sponsors has grown from fewer than half a dozen in 2001 to more than 100 today. The volume of TIC investments generated in each of the past four quarters has exceeded $1 billion, with volume this year is projected to reach $5.4 billion, according to Omni.

    TIC Options for the Small Business Owner

    Any small business owner who owns real estate—or owns a business that owns real estate—may be able to defer taxes upon the sale of that property through a 1031 exchange.

    By investing in a TIC rather than purchasing another property with sale proceeds, the small business owner can tap the potentially superior returns available from institutional-quality real estate, which is more commonly owned by life insurers, pension fund, foundations and other institutional players.

    Tenancy in common is a bridge between non-institutional investors and institutional real estate, with more than 120 property acquisitions under its belt and a portfolio of properties valued at more than $1 billion.

    Another part of the 1031/TIC phenomenon is allowing investors to diversify holdings. The “like kind” rules are not narrowly interpreted, so you needn’t worry about finding an exchange property that is just like what you have to sell. You can sell raw land and buy an apartment complex, or you can sell an apartment complex and buy a strip mall. 

    Finally, TIC investing takes you out of the property management business. That’s why TICs are popular with aging Baby Boomers, who are tired of maintaining and operating their rental properties. In a typical TIC investment, the sponsor handles day-to-day property management for a fee.

    How to Get In the Game

    Don’t expect to match the 55% annualized return Schmidt got. The real estate market is cooling, so you may not see huge capital gains for a while. Still, cash-on-cash returns are currently around 6.25% annually, providing a respectable income stream.

    Also, remember that a TIC investment is long-term. You want to count on a five to seven year hold and view it as an illiquid investment.

    Topics: TIC Articles, Tenants-In-Common Info | No Comments »

    Otto von Bismarck

    By Tom Andros | March 2, 2008

    People never lie so much as after a hunt, during a war or before an election.

    Otto von Bismarck - 1815-1898
    Prussian Prime Minister, Founder and Chancellor of the German Empire

    Topics: Quote Du Jour | No Comments »

    Operation Joke

    By Tom Andros | February 29, 2008

    Two little kids were in a hospital laying next to each other. The first kid leaned over and asked, “What are you in here for?” The second kid said,” I’m in here to get my tonsils out, and I’m a little nervous.” The first kid said, “You’ve got nothing to worry about. I had that done to me once. They put you to sleep, and when you wake up, they give you lots of Jell-O and ice cream. It’s a piece of cake!” The second kid then asked, “What are you in here for?” The first kid responded, “Well, I’m here for a circumcision.” The second kid said, “Whoa! I had that done when I was born. I couldn’t walk for a year!”

    Topics: Joke Du Jour | No Comments »

    Peter Drucker

    By Tom Andros | February 29, 2008

    “Time is the scarcest resource, and unless it is managed, nothing else can be managed.”

    Peter Drucker (1909-2005)
    Austrian-American economist and author

    Topics: Quote Du Jour | No Comments »

    Industry Terms

    By Tom Andros | February 29, 2008

    §1031 Buyer Representation
    Real Estate Brokerage Company with expertise in §1031 Exchanges. Their main function is to represent the interests of the §1031 buyer rather than to the property broker who has a fiduciary responsibility to the seller.

    §1031 Exchange
    Internal Revenue Code, Section §1031 states that neither gain nor loss is recognized if property held for investment or for productive use in a trade or business is exchanged for property held for investment, trade or business. There are several kinds of §1031 exchange methods used today, including delayed exchanges, simultaneous exchanges, and reverse exchanges.

    §1031 Tax Deferred Exchange
    An exchange where, pursuant to “An Agreement” the taxpayer transfers property held either for productive use in a trade, business or for investment and receives a new property to be held either for productive use in a trade, business or for investment.

    1991 Revisions
    Year when the IRS held a hearing to “clean up” the Tax Reform Act of 1984 and provide uniform terminologies. A main result of this revision was that the IRS eventually had a change of attitude toward Delayed Exchanges by accepting them instead of fighting them.

    Accommodator
    A qualified intermediary who agrees to assist the exchanger to affect a tax-deferred exchange. Also described as a facilitator or an intermediary, a qualified intermediary cannot be the taxpayer, a related party, or an agent of the taxpayer.

    Adjusted Basis
    The basis of a property adjusted for any capital improvements or depreciation. To calculate the adjusted basis, add the basis (the cost of the property), to the cost of any capital improvements made to the property during the taxpayer’s ownership, and subtract the depreciation taken on the property during that specific time period. Once the adjusted basis is known, the gain or loss can be computed.

    Appreciation
    An increase in an asset’s value.

    Asset allocation
    Dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to balance the risks of investing. Asset allocation models vary based on an individual’s specific financial goals and situation.

    Basis
    System of measuring investment in property for tax purposes.
    Example: Original cost, plus improvements, minus depreciation taken.

    Basis in the Replacement Property
    In an exchange, the deferral of the tax on the gain is accomplished by requiring the taxpayer to carryover (substitute) the basis of the relinquished property to the replacement property with suitable adjustments in the event additional consideration is paid.

    Bear market
    An extended period of falling value of the overall market, accompanied by widespread pessimism.

    Boot
    In an exchange of real property, any consideration received other than real property is “boot.” The amount of gain recognized is always limited to the gain realized or boot, whichever is the smaller amount. For a transaction to result in no recognized gain, the taxpayer must receive property with an equal or greater market value and debt than the property relinquished, and receive no boot. In exchanges, there are two types of boot: cash boot and mortgage boot. Cash boot is cash or anything else of value received. Mortgage boot is any liabilities assumed or taken subject to in the exchange.

    Broker/dealer
    An individual or firm that is in the business of buying and selling securities. Broker/dealers are registered with the Securities and Exchange Commission (SEC).

    Bull market
    An extended period of rising value of the overall market.

    Buyer
    Person who wants to acquire the exchanger’s property. For a three- or four-party exchange, the buyer usually has cash.

    Capital appreciation
    Increased market value of an asset as measured by share price.

    Capital Gain
    Difference between the sales price of the Relinquished Property less selling expenses and the adjusted basis of the property.

    Class “A” property
    Most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility, and a definite market presence.

    Concurrent Exchange
    Also referred to as a simultaneous exchange when the Exchanger transfers out of the Relinquished Property and receives the Replacement Property at the same time.

    Constructive Receipt
    Control of the cash earnings without real physical possession by the Exchanger or their agent.

    Closing
    The transfer of title of real property in a real estate transaction.

    Deferral
    Tax on an exchange transaction is not paid at the time of transaction but at the time the replacement property is sold. Deferral is accomplished by substituting, or carrying over the basis of the taxpayer’s relinquished property to the replacement property making any necessary adjustments for additional consideration paid.

    Deferred Exchange
    term currently used in place of “Non-Simultaneous Exchange” or “Starker Exchange.” A type of exchange where the Exchanger utilizes the exchange period.

    Delayed Exchange
    Also known as non-simultaneous, deferred, and Starker. A delayed exchange is when the Replacement Property is received following the transfer of the Relinquished Property. All potential Replacement Properties must be identified within 45 days from the transfer of the Relinquished Property and the Exchanger must receive all Replacement Properties within 180 days or the due date of the Exchanger’s tax return, whichever comes first.

    Depreciation
    Decline in value of an asset. Property depreciation occurs due to general wear and tear.

    Depreciation Recapture
    Exchanges of like-kind property ordinarily do not trigger any depreciation recapture (that is, deductions taken in excess of straight-line depreciation under Section 1250 IRC). When there is an exchange into a property of lesser value, or when the exchange consists partly of cash and property not of a like-kind, consideration must be given to the depreciation recapture provisions of Section 1250 and the higher capital gain tax rates for depreciation recapture.

    Direct Deeding
    Vested owner deeds directly to the final owner. Doesn’t eliminate the duties of the Qualified Intermediary to acquire and transfer the relinquished property and acquire and transfer the Replacement Property.

    Diversification
    Similar to asset allocation, diversification is a strategy designed to reduce overall portfolio risk.

    Due diligence
    The practice of investigating a potential investment.

    Exchange Equity
    The “cash” and other “property” available at time of closing on the sale of the relinquished property.

    Exchangor
    Party wishing to defer tax on gain on the exchange of investment property.

    Exchange Period
    The replacement property should be received by the taxpayer within the “Exchange Period,” which ends on the earlier of 180 days after the date which the taxpayer transferred the property relinquished, or the due date for the taxpayer’s tax return for the taxable year when the transfer of the relinquished property occurs (such as April 15th). The exchange period is 180 days, due to the Taxpayer’s ability to extend the date of payment.

    Gain
    The amount obtained for a property minus the property’s adjusted basis, and transaction costs. No matter what the adjusted basis of a property is, there’s no gain until the property is transferred. There are two types of gain “realized gain” and recognized gain.” Realized gain is the difference between the total consideration (cash and anything else of value) received for a piece of property and the adjusted basis. Realized gain is not taxable until it is recognized. Gain is usually, but not always, recognized in the year which it is realized. If gain is not recognized in the year it is realized, it is said to be deferred. In an exchange under Section §1031, realized gain is recognized in part or in full to the extent that boot is received. See Boot. Where only like-kind property is received, no gain is recognized at the time of the exchange.

    Growth Factor
    Interest earned for the duration of the exchange that is payable at the end.

    Identification Period
    The replacement property must be identified within 45 days of the close of escrow/closing the relinquished property. If the 45th day happens to fall on a weekend or legal holiday, it is not to be extended.

    Income property
    Real estate that generates cash flow.

    Intermediary
    The party who facilitates a tax deferred exchange by acquiring and selling property in an exchange. The intermediary plays a role in almost all exchanges these days. He or she neither begins nor ends the transaction with any property. He or she buys and then resells the properties in return for a fee.

    Leverage
    The degree to which an investor or business is using borrowed money.

    Liquidate
    To convert assets into cash.

    Like-Kind Property
    Any valid property for any other valid property if the property(s) are held for productive use in trade, business or for investment purposes.

    Liquidity
    The ability of an asset to be converted into cash quickly.

    National Association of Securities Dealers (NASD)
    A self-regulatory securities industry organization responsible for the operation and regulation of the stock market and for conducting regulatory reviews of members’ business activities.

    Net lease
    A property lease in which the tenant pays all expenses normally associated with ownership, such as utilities, maintenance, repairs, insurance, and taxes.

    Net worth
    Total assets minus total liabilities of an individual or company.

    Non Recourse Loan
    A loan whose terms include the lender agreeing that its sole remedy in the event of failure to repay will be to foreclose against the property securing the loan.

    NNN Triple lease
    A lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as Net Net Net Lease or Triple Net Lease).

    Operating costs
    The day-to-day expenses of running a business.

    Ordinary income
    Income other than capital gains.

    Passive income
    Income derived from business investments in which the individual is not actively involved, such as a real estate limited partnership.

    Portfolio
    All investments collectively owned by the same individual or organization.

    Qualified Intermediary (QI)
    The corporation who acts as the accommodator in the exchange. A qualified intermediary is identified as follows:

    1. Not a related party to the Exchanger, (e.g. agent, attorney, broker, etc.);
    2. Receives a fee;
    3. Acquires the relinquished property from the Exchanger; and
    4. Acquires the replacement property and transfers it to the Exchanger.

    Realized Gain
    Gain that is not necessarily taxed. In a successful exchange the gain is realized but not recognized and thus not taxed.

    Recognized Gain
    Amount of gain which is subject to tax when property is disposed of at a gain or profit in a taxable transfer.

    Relinquished Property
    Old property that is being sold by the Exchanger. (Formally called the Down leg property, currently called Phase I property).

    Replacement Property
    New property being acquired or the target property being brought by Exchanger. (Formally called up leg property, currently called Phase II property).

    Return
    The profit made on an investment, expressed annually as a percentage of the total amount invested.

    Registered Representative
    An individual who is licensed to sell securities and has the legal power of an agent, having passed the Series 7and Series 63 examinations. Usually works for a brokerage licensed by the SEC, NYSE, and NASD.

    Risk
    The possibility of loss of capital on an investment.

    Safe Harbor
    Term identifying the requirements to protect the Exchanger’s money and the “Qualified Intermediary.”

    Securities and Exchange Commission (SEC)
    The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets.

    Securities Investor Protection Corporation (SIPC)
    A non-profit membership corporation established by Congress that insures securities and cash in customer accounts up to $500,000 (up to $100,000 in cash) in the event of brokerage bankruptcy.

    Seller
    The person who owns the property that the taxpayer wants to acquire in the exchange in a three or four party exchange.

    Sequential Deeding
    Property that’s deeded to the Intermediary whereby the Intermediary deeds to the final owner.

    Simultaneous/Concurrent
    Exchange without any time between the sale and purchase.

    Simultaneous Exchange
    Also referred to as a concurrent exchange when the Exchanger transfers out of the Relinquished Property and receives the Replacement Property at the same time.

    Starker Exchange
    A term used to describe delayed exchanges. “Starker vs. Commissioner” established the delayed exchange concept. The term “starker exchange” is used as another way of referring to delayed, deferred or any other non-simultaneous exchange.

    Tax-advantaged
    Having other tax benefits that typically result in tax savings.

    Taxpayer
    Also known as the exchanger. A taxpayer has property and would like to exchange it for new property. While all parties in an exchange are theoretically taxpayers, this term applies to the party who expects to receive tax deferred treatment under Section §1031.

    Tax Reform Act of 1984
    In the Tax Reform Act of 1984, Congress addressed the IRS’s continued displeasure with the Starker decision by amending Section §1031 to allow Delayed Exchanges; but only if all of the exchange property is identified and acquired within specific deadlines (see Exchange Period). And most important in the Conference Report accompanying the 1984 Act, Congress specifically reaffirmed that a “sale” followed by reinvestment in like-kind property doesn’t qualify for tax deferral under Section §1031. So to qualify for tax deferral, it is still essential to cautiously structure an exchange to avoid actual or constructive “receipt” of proceeds of sale and to prevent characterization of the transaction as a taxable sale and reinvestment.

    Tax shelter
    A technique that allows an investment to be legally exempt from federal, state, and local taxes to varying degrees.

    Transaction Costs
    Any cash paid by way of commission or other expense in an exchange. Transaction costs are deducted in computing the consideration received.

    Transfer Tax
    A tax assessed by a city, county or state on the transfer of property that may be based on equity or value. The use of direct deeding in an exchange avoids additional transfer tax.

    Undervalued
    Perceived to be below its value.

    Topics: 1031 Exchange Informatio, Tenants-In-Common Info | No Comments »

    Disadvantages of TIC Ownership

    By Tom Andros | February 29, 2008

    Disadvantages of TIC Ownership: 

    Topics: Tenants-In-Common Info | No Comments »

    Advantages of TIC Ownership

    By Tom Andros | February 29, 2008

    Advantages of TIC Ownership: As professionally managed, turnkey real estate solutions, TICs provide numerous benefits:

    Topics: Tenants-In-Common Info | No Comments »

    What are TICs ?

    By Tom Andros | February 29, 2008

    What are TICs?
    A Tenant-In-Common (TIC) or fractional interest ownership is essentially ownership of a piece of a large, institutional-grade property and sharing of the proportional income, tax shelter and appreciation. You have a deed and all rights of a single owner, but there are many owners. You gain monthly (or quarterly) passive income, and there is no management or day-to-day work for the investor. The properties are professionally managed. However, the Tenants in common have certain rights, such as voting in or out the property manager, etc.

    TICs as an industry took off after the IRS ruling allowed them to qualify for 1031 exchanges. Revenue Procedure 2002-22 set forth a 15 point ruling to this end.

    TICs are ideal for qualified, accredited investors who have smaller funds (such as $150,000 to $300,000) coming out of a trade but wish to purchase institutional-grade properties with passive income.

    TICs can also be ideal for qualified investors in a 1031 exchange who want passive income, even at larger amounts. 1031 exchanges follow very strict rules, and the hardest rule for investors is to meet the 45 day ID period. The TIC acquisition procedure allows buyers time for due diligence, identification and acquisition in appropriate time frames.

    TICs can be ideal for investors who wish to diversify into institutional-grade properties. Because of frequent low minimums in properties ($100,000 to $250,000), diversification is possible.

    Typical TIC properties are new retail shopping centers, large Class A office buildings with corporate tenants, and large multi-family apartment offerings (usually Master leased). Other offerings, such as assisted living facilities, industrial properties or sometimes a smaller NNN (triple net lease whereby the tenant pays all taxes, insurance, maintenance and rent - typical retail) properties like a drugstore or restaurant are possible.

    Most TICs have non-recourse financing arranged on the property, ranging from 50% to 65% loan to value (some properties go a bit higher).  Note that TIC deals have what is called ‘load’ or upfront fees.  The Revenue Procedure 2002-22 stated that payment to sponsors may not depend on the income and profits derived from the property. The fees or load are paid up front at closing, and this load must be reviewed to see the impact on the overall returns, tax benefits and such.  One good comparison is to see what the property was purchased for, what the current appraisal value is, and what the price to the TICs will be.

    TIC Sponsors find, buy or tie up, and then prepare the properties for market after doing their own due diligence. They arrange the financing, set up all legalities necessary for a TIC, prepare all documentation for investors and coordinate the closings.

    TICs often come to market with a closing target date of several weeks to a month ahead. During that time, investors are reviewing the materials with their registered representative and other team members (such as attorney or accountant), taking a tour of the property, and analyzing and getting any answers needed before finalizing the investment. Closing documents come up to 2 weeks before the actual closing, as there are many details to coordinate. Timing is always an issue for a 1031 buyer, and we are sensitive to this.

    Topics: Tenants-In-Common Info | No Comments »

    1031 Replacement Property - Peak Professional Plaza, Las Vegas Valley

    By Tom Andros | February 29, 2008

    Peak Professional Plaza is located in the northwest quadrant
    of the Las Vegas Valley near Summerlin. 

    Topics: 1031 Replacement Property | No Comments »

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