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What You Need To Know About TIC Market Risks

Jul 24, 2008
There are risks in any and every aspect of the real estate market, even in 1031 TIC exchanges. (1031 is the tax-deferred version of Tennant In Common or TIC real estate investment). Just trying to find out what it is carries its own risk. Just look at the headache I have now! Oh, you can't see me. I forgot. Let's go on to some more practical advice about identifying and avoiding TIC market risks.

Let's Be Careful Out There

You wouldn't just dive into any old pool of water without knowing how deep it was, would you? (In case you didn't know you shouldn't do that). Any piece of real estate wanting to be sold to a TIC group shouldn't just be snapped up without a second thought. You need to know the TIC market risk for that particular piece of real estate.

In one sense, assessing the TIC market risk of a piece of real estate is like trying to pick a horse to bet on in a horse race. What is the past performance? If you wouldn't put $1 million on the nose of a horse that has always finished last in his or her last 100 races, then you shouldn't invest that same million for a building owner who has tenants that never pay their rents.

You need to do your homework in order to assess just how much of a TIC market risk the property is. What condition is it in? What is its past performance? How much does the owner have in outstanding debt? What shape is the real estate market in that area? All of these things must be looked into not only by you, but your broker, and any legal counsel available to you.

Never Gamble More Than You Can Afford

Real estate is not as reckless of a gamble as betting on race horses, but it's nearly as bad. Just because a horse has won 10 races in a row does not mean he or she is a shoo-in to win the next race. That's the same with real estate. You need to be really honest with yourself over your finances, in case you have to be responsible for some unseen financial problems with the property.

Unlike gambling on horses, you need to devise an exit strategy with any TIC 1031 exchanges, in case your view of the TIC market risk was way too optimistic. There should be a holding period of five to seven years, where at the end your group can try to refinance for lower payments.
About the Author
Kathryn R. Landry is a business writer for TIC Advisors, Inc . A company that can give you the most complete information on a 1031 exchange or TIC property ownership.
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