INVEST IN RESIDENTIAL INCOME PROPERTY
INVEST IN RESIDENTIAL INCOME PROPERTY
TIC = Tenants in Common
aka REIT's = Real Estate Investment Trusts
PROS:
It's an excellent way to divest your portfolio, because you can invest in an apartment complex in Nashville, a warehouse complex in Memphis, a government leased building in Minnesota, or a strip mall with an anchor store (like a Best Buy or a Mervyns) in Houston.
Your
management responsibilities require you to open an envelope and deposit a check
- every month (so much work!).
You are leveraging your money, because generally you assume a 50-60% loan to value loan.
HYPOTHETICAL INVESTMENT:
For simplicity, let's say you invest $100,000 of your lovely money in a strip mall. You are purchasing a 5% share of the strip mall with your money (along with 19 other investors who are all buying equal shares), and you also assume liability of the loan on that property... so if the property has a 50% ltv (loan to value), then you assume 5% of the total loan and you will own $200,000 of the mall. You don't have to qualify for the loan or any of that nonsense. Also, (and this is important) you are not liable for more than your initial investment, if something were to go drastically wrong with the investment (that's why it's important to choose your management company very carefully). If the strip mall goes up in value, say, 10% in the time you own it (say, 5 years), then your share will be worth $220,000. (does all that make sense?)
You can 1031 exchange this property when it sells.
You can
depreciate the property on your taxes (in the above example, you'd
depreciate 5% of the strip mall - just give it to your accountant - she'll
know what to do with it).
In my opinion, it's a SAFE investment. Obviously, you must do your homework and read up on the property management companies track record, read up on the particular property you're considering investing in, perhaps fly or drive to have a look at it first hand - but that's just doing your due diligence (did I spell that right?) before you invest. PROPERTY IS PROPERTY. It's solid, tangible... you can touch it. You KNOW you own a percentage of a certain property.
For example, Mark and I own 2% of an apartment complex in Las Vegas. We invested $100,000 cash (the money came from a 1031 exchange of a different property we sold), and we assumed $90,000 of the loan on the property. Every month, I get a check for $671.33. When we go to Lost Wages (sorry... Las Vegas), we always drive by and take a look at "our apartment building".
CONS:
There are two real negatives (number 3 isn't a big deal):
You
must invest $100,000 to $350,000 of your cash (or exchange that $ amount
from a different property you've owned). These are multi-million
dollar properties and there are a limited number of investors allowed to
participate in each offering. TIC investments are not for beginning
investors.
Your
investment is NOT liquid. You can't kick out the tenants and sell the
property. You can't borrow on it. The management company makes
the decision about when it's the best time to sell the property - you're
pretty much out of the loop on the decision making process. (Just cash
the checks and smile.)
You can only leverage your money with a loan to value of 50-60%. When you're buying a residential house, you can borrow 80% or more of the house value!
I have some of my money diversified and invested in TIC properties, so if you're interested in what I currently consider to be a good value (they change every couple of months, based on what's being offered out there by the 'good' companies), just drop me an e-mail. I read through all of the offerings from several reputable companies, so I usually know one or two good investments at any given time.
Also, when investing in a TIC property, I use the same logic as I would when investing in residential real estate. Where is it located in the country? Is it in the "path of progress"? Who will be the tenants? Who will support the tenants (is there a Starbucks?), etc.
- Terri Linzmeier, Broker,
SelectHomes@cox.net
Where to invest
- Right now, we HIGHLY recommend Austin, Texas
(not Dallas, not Houston...)
Buying a new home from the builder
Tenants
Property Management
Never pay capital gains tax - 1031 Exchanges
Depreciation is your friend
Leveraging your money (it's a beautiful
thing!)
Tenants in common -
TIC Investments
Excel Spreadsheet
Investment Property Analysis worksheet
(note: you must have Excel on your computer to open this)
When To Sell
Miscellaneous - And
recent remarks by Suze Orman