Is Co-Ownership of Real Estate for You?
By Randall Bentley, CCIM, SIOR, Broker, Bentley Commercial LLC
Co-ownership of real estate (CORE) is a relatively new real estate phrase currently gaining momentum in today’s investment real estate market. A more common term is Tenancy in Common or TIC investment properties. Tenancy in common ownership has been around for hundreds of years; however, its more recent popularity has dramatically increased because of growing investor interest, increased opportunities, and most importantly perhaps, the guidelines and clarifications provided by the IRS for 1031 tax deferred exhanges.
Fractional co-ownership enables individual real estate investors, organized as co-owners, to purchase fractional interests in higher quality assets and realize the potential benefits of owning quality investment properties that a single investor may not be able to do on his own. This strategy can provide more stable, institutional quality real estate assets and income, without the headaches of hands-on management.
What are the advantages of Co-ownership opportunities?
• Lower equity requirement for higher quality investment
• Participation in property or rental cash flow income and appreciation
• Co-owners share tax and wealth preservation benefits
• Qualifies for 1031 deferred tax exchange on an individual basis
• Professional property management and asset management
• Minimization of risk due to higher quality and larger revenue volume
Are there any disadvantages of Co-ownership properties?
As with all real estate investments, there is always some risk; however, the risks with co-ownership are minimized simply because the ownership is fractional and co-owners do not bear the entire responsibility should the investment prove less productive. For instance, there is financial risk and responsibilities for a property where investors have to “pony up” extra cash when major repairs to a building are needed or when several large tenants move out and the space is not immediately re-leased.
Investors who do not take the time to study in detail or perform due diligence on the property may realize soon after the closing that the property does not perform “exactly” as was projected in those beautiful brochures and financial spreadsheets. Projections and reality are two different things.
By the way, you may want to get used to the idea of having partners you may never meet in person. A TIC property can have up to 35 investors; however, co-owners are on fee title, allowing them to sell their interests to other buyers any time within specified guidelines established by the co-ownership entity.
How can I know what is a good investment?
We at Bentley Commercial always advise investors to use a licensed real estate professional broker who has expertise in real estate investments and a deep knowledge and understanding of not only the real estate market, but development methodologies and strategies as well. Determining the profitability of an investment property, especially a higher quality more complex investment, can be extremely detailed and one must have or rely on the knowledge of professionals with expertise in market conditions as well as financial analysis.
Randall Bentley has been in the commercial real estate business for nearly 30 years and would love to talk with you about possible investment opportunities in co-ownership real estate properties.
