ciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with Even though you may not be a doing 1031 Exchange, you can still enjoy the benefits Tenant-In-Common investments offer. If you’ve had experience with a 1031 Exchange in the past few years you’ve probably learned about the exploding industry of Tenants-In-Common (TIC) investments, providing fractional interest ownership in investment properties. We’d like to share how after-tax investing in TICs has encountered its share of success.

1031 Exchange investors have obvious motivation for continuing to defer federal capital gains tax, state tax, and depreciation recapture. While 1031 investors compile much of the TIC industry’s capital, several after-tax investors are capturing investment benefits such as: partially tax-sheltered income, credit rated tenants with NNN leases and access to institutional grade properties in superior markets through economies of scale. Exit strategies for after-tax investors can be left with more flexibility than that of a 1031 investor. Consider the following case study:

30 months ago Mr. and Mrs. Smith (we’ve changed their names for confidentiality) invested $1.68 Million of after-tax dollars into a large retail mall in California structured as Tenant-In-Commons. Throughout the 30 months of operation, the mall produced reasonable cash flow that was partially tax-sheltered through depreciation. When the mall sold Mr. and Mrs. Smith had a few choices:

1. They could continue forward with a 1031 exchange, reinvesting the entire sale proceeds into one or more 1031 Exchange Alternatives.
2. They could cash out with the entire sale proceeds paying capital gains tax, state tax and depreciation recapture.
3. They could do a combination of both, exchanging a portion of the proceeds and cashing out a portion, paying tax on the portion cashed out.

Many other investors in this property were from previous 1031 Exchanges. Some were on their 3rd or 4th exchange, so the taxable gain above their original basis has grown significantly. Also, deprecation taken over the years has compounded. Paying the current 25% recapture tax for deprecation itself leaves them with little choice but to continue to do 1031 Exchanges moving forward.

Mr. and Mrs. Smith enjoyed capital appreciation along with the other co-owners and took minor depreciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with §

While 1031 investors compile much of the TIC industry’s capital, several after-tax investors are capturing investment benefits such as: partially tax-sheltered income, credit rated tenants with NNN leases and access to institutional grade properties in superior markets through economies of scale. Exit strategies for after-tax investors can be left with more flexibility than that of a 1031 investor. Consider the following case study:

30 months ago Mr. and Mrs. Smith (we’ve changed their names for confidentiality) invested $1.68 Million of after-tax dollars into a large retail mall in California structured as Tenant-In-Commons. Throughout the 30 months of operation, the mall produced reasonable cash flow that was partially tax-sheltered through depreciation. When the mall sold Mr. and Mrs. Smith had a few choices:

1. They could continue forward with a 1031 exchange, reinvesting the entire sale proceeds into one or more 1031 Exchange Alternatives.
2. They could cash out with the entire sale proceeds paying capital gains tax, state tax and depreciation recapture.
3. They could do a combination of both, exchanging a portion of the proceeds and cashing out a portion, paying tax on the portion cashed out.

Many other investors in this property were from previous 1031 Exchanges. Some were on their 3rd or 4th exchange, so the taxable gain above their original basis has grown significantly. Also, deprecation taken over the years has compounded. Paying the current 25% recapture tax for deprecation itself leaves them with little choice but to continue to do 1031 Exchanges moving forward.

Mr. and Mrs. Smith enjoyed capital appreciation along with the other co-owners and took minor depreciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with

ge retail mall in California structured as Tenant-In-Commons. Throughout the 30 months of operation, the mall produced reasonable cash flow that was partially tax-sheltered through depreciation. When the mall sold Mr. and Mrs. Smith had a few choices:

1. They could continue forward with a 1031 exchange, reinvesting the entire sale proceeds into one or more 1031 Exchange Alternatives.
2. They could cash out with the entire sale proceeds paying capital gains tax, state tax and depreciation recapture.
3. They could do a combination of both, exchanging a portion of the proceeds and cashing out a portion, paying tax on the portion cashed out.

Many other investors in this property were from previous 1031 Exchanges. Some were on their 3rd or 4th exchange, so the taxable gain above their original basis has grown significantly. Also, deprecation taken over the years has compounded. Paying the current 25% recapture tax for deprecation itself leaves them with little choice but to continue to do 1031 Exchanges moving forward.

Mr. and Mrs. Smith enjoyed capital appreciation along with the other co-owners and took minor depreciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with

n of the proceeds and cashing out a portion, paying tax on the portion cashed out.

Many other investors in this property were from previous 1031 Exchanges. Some were on their 3rd or 4th exchange, so the taxable gain above their original basis has grown significantly. Also, deprecation taken over the years has compounded. Paying the current 25% recapture tax for deprecation itself leaves them with little choice but to continue to do 1031 Exchanges moving forward.

Mr. and Mrs. Smith enjoyed capital appreciation along with the other co-owners and took minor depreciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with

ciation (less than 3 years). At this point, Mr. and Mrs. Smith chose option #3 from above, exiting with a portion of the proceeds to pay down some of their outstanding debts. Further, Mr. and Mrs. Smith exchanged a portion of the proceeds into an Oil & Gas Royalty, thus establishing excellent diversity with an asset that is not correlated to real estate cycles or stock exchanges. By doing so, this Oil & Gas Royalty brought exceptional strength to their portfolio. By investing with after-tax dollars, this couple had more alternatives upon exit for re-investment than with §1031 dollars.

It’s important to note that not all TIC investments have encountered success. The key to any investment is still the underlying asset and its management. The key objectives to these projects are still the same as they’ve been for years:

1. Provide safety of principal
2. Consistent cash flow
3. Upside potential and
4. A viable exit strategy

Even with the TIC market continuing to expand, cap rates compressing and rising interest rates, many of these investments make perfect sense with or without a §1031 Exchange. Due to this markets explosive growth, professional assistance and proper education will become increasingly important in the years to come.

“Note: All investments have risks. Prior performance is not indicative of future results.”