Gem The - La Quinta Chamber of Commerce

20 The Gem La Quinta Chamber of Commerce September 2006 lqchamber.comMore Return on Equity For Your Investment DollarGuest Columnist ArticleBy Judy MathesFew would deny that real estate is a solid investment. It providesan attractive combination of stability, reliable cash flow,preservation of principal and capital appreciation. However, manyinvestment property owners nearing retirement find themselves in aquandary. They are equity rich, but cash poor, with increases in thevalue of their property far outpacing income growth. They also areoften tied down by the day-to-day issues of property managementand, particularly in California, shackled to the constraints of rent(and eviction) control. In fact, Californian metropolitan areas arehome to some of the lowest cash return on equity in the state’s realestate marketplace, which is somewhat counter-intuitive givenCalifornia’s ever-booming property market.The obvious answer is to sell the property and unleash thedormant equity, but that can be problematic. These investors facethe reality of prohibitive capital gains taxes and recaptureddepreciation, as well as the task of identifying an alternateinvestment venue; or locating, acquiring and financing suitablereplacement property in the time period allowed, taking advantageof tax deferral under IRS code section 1031.An ideal solution for many investment property owners may be toreinvest the proceeds from the sale of their property and utilize asubsequent 1031 exchange into a tenancy-in-common (TIC)ownership type, also known as co-ownership of real estate (CORE)interest in a suitable replacement property.1031 exchanges, also known as Starker exchanges or tax-deferredexchanges, permit owners to sell investment property and defer taxpayments by reinvesting the proceeds into another investmentproperty (or properties). In order to completely defer the payment oftax, among other things, the replacement property must be of equalor greater value and all the equity from the sold property must bereinvested in the new property. The marriage of 1031 exchange andTIC/CORE allows investors not only to defer their capital gains taxesbut also to upgrade their investment real estate.TIC/CORE is a way of sharing ownership of property among two ormore persons whereby each tenant holds an undivided interest inthe property. Tenants-in-common may own interests of differingsizes. TIC/CORE investors are on the title and considered separateowners of the real estate. They share pro rata in the income, taxbenefits and appreciation of the property. Their TIC/CORE interestcan be purchased, sold, gifted, bequeathed by will or inherited; andit is subject to property taxes, gift tax, and estate and inheritancetaxes in the same manner as any property held in sole ownership.With a TIC/CORE property, each of up to thirty-five investors have theopportunity to own an undivided fractional ownership interest in aninvestment-grade property, such as an office building, shoppingmall, apartment complex or industrial property, costing anywherefrom $10 million to $150-plus million.The benefits of investing in TIC/CORE properties are substantial.Such properties employ professional asset and propertymanagement, relieving the investor of day-to-day tenant headaches.More important, investors often receive greater cash flow andoverall returns than they had in their previous sole ownershipproperty. (Annualized cash flow and overall investment return varyfrom property to property.) Also compelling is that TIC/COREexchange investors can diversify among several property types, andgeographic locations through fractionalized ownership, while stillenjoying 1031 exchange benefits on each amount. Thus, investorscan potentially reduce risk in their overall real estate portfolio.Investors seeking to exchange for a TIC/CORE property are bestadvised to work with a financial advisor experienced in 1031exchanges. Such advisors work closely with top real estateproviders, who give the investor access to the best propertiesavailable. In addition, many TIC/CORE opportunities have prearranged,non-recourse financing in place, which is perfect forinvestors working within the 1031 exchange time frame. Numeroushours of upfront investigation, evaluation, due diligence and life cycleplanning transpires before a property is offered to an investor group.Investors faced with only a 45-day window to identify a suitablereplacement property to complete a 1031 exchange can select asuitable project with confidence.Given the tax deferral, institutional-grade quality of the property,professional property management and pre-arranged, non-recoursefinancing aspects, a 1031 exchange replacement property structuredas tenancy-in-common ownership can be a very wise and profitablesolution. It allows the investor to maintain everything they like aboutreal estate (monthly income, preservation of principal, capitalappreciation, etc.), while eliminating most of the hassles of propertyownership.Judy Mathes is a Replacement Property Specialist® with 1031Exchange Options. For more information, please seehttp://www.1031exchangeoptions.com. Judy can be reached toll freeat 800-675-2424, locally at 760-391-2369, or online athttp://www.1031exchangeoptions.com.This article is neither an offer to sell nor an offer to buy real estateor securities. There are material risks associated with the ownership ofreal estate. You must be an accredited investor. Securities offeredthrough Sigma Financial Corporation, Member NASD/SIPC.The Home Loan Consultant with More Mortgage OptionsRoger L. PerrisHome Loan Consultantand Business DeveloperServing the La Quinta andCalifornia Desert AreaFREE 24 HOURRECORDED INFORMATIONCALL 1.800.958.8098Ext.656 - Tax Deductions Buying a Home672 - Buy for LESS than Your Buying in RENT!673 - How to Buy a Home even with Damaged Credit678 - Eight Tips When Obtaining A Loan1736 - Why do Home Loan Rates Change?WIN ONE MONTH’SMORTGAGE PAYMENT(up to $5000)!Enter Every Month atwww.HomeLoanConsultant.NETThe Keyto your futureHome...Having the rightFinancial Plan!