What is a TIC co-ownership purchase?
A "TIC" co-ownership purchase refers to real estate owned by a group of individual buyers as Tenants-In-Common (TIC), each with a fractional-deed co-ownership interest and on Fee Title with a Title policy.
What are the benefits of a co-ownership?
It's an opportunity for an individual buyer to own a fractional interest in a stable, quality real estate asset. Co-owners share the tax and wealth preservation benefits of sole-owned real estate, the same or better cash flow, and long-term appreciation potential—without day-to-day management issues.
How large is the co-ownership industry?
In just four years (since the IRS issued guidelines that qualified fractional-deed real estate as 'like-kind' replacement property for 1031 Exchange properties), the industry has grown to $15 Billion annually.
What are Cal State Companies' credentials as a seller?
We have been a real estate principal since 1975. We are one of the most successful fractional-deed sellers in the nation, with a quality apartment investment portfolio.
It varies, but typically ranges from $25,000 to $75,000.
Does Cal State Companies invest its own funds in the acquisition?
Yes! We generally invest about 10%–20% of the total equity required for each acquisition, and we then become one of the co-owners.
How many co-owners are involved in each property?
As few as two and as many as 34, but typically between seven to ten co-owners are involved.
Do I have to qualify for a loan?
Yes and No. The co-owners each must complete loan applications and apply as a group for the loan, but the property really "qualifies" for the loan.
By a majority vote of the co-owners, facilitated by the Project Manager.
What is Cal State Companies' role after the close?
After the close, we become a co-owner with the same pro rata rights and responsibilities as any other co-owner. Cal State Companies does not control the property after the sale closes.
Co-owners maintain control, voting on and hiring professional, third-party property and project management firms. Cal State Companies does not handle property management.
Each co-owner receives a pro-rata share of the monthly income, tax benefits, and appreciation. Co-owners are paid directly by the property management company, subject to property performance.
What if there is a cash call?
Though this could occur, significant reserves are established for each property to try avoid such an occurrence.
What is the exit scenario?
The projected hold time to maximize appreciation is approximately five years, although Cal State Companies' TIC properties typically sell after about three years on average.
An IRS-approved real estate investment technique that allows owners to defer capital gains taxes by selling a property, identifying a like-kind replacement property within 45 days, and closing escrow on the new property within 180 days. In an ordinary sale, the property owner is taxed on any gain realized by the sale of the property. In an Exchange, some or all of the tax on the transaction is deferred until some time in the future, usually until the newly acquired property is sold (although it can be exchanged again and again, thereby deferring taxes indefinitely).
Does the Cal State Companies ever control my 1031 Exchange funds?
No. Funds move from the co-owner's 1031 Accommodator directly to the purchase escrow account. Cal State Companies never handles a co-owner's 1031 Exchange funds.
Guidance from the IRS that outlines how to structure a fractional-deed co-ownership property offering to individual 1031 Exchangers.
All real property held for business or investment purposes is 'like-kind' and can be exchanged for other real property, such as vacant land for an apartment building or a rental home for a retail center.
Is foreign property considered like-kind?
No. Only property located within the fifty United States and the U.S. Virgin Islands is considered like-kind and eligible for a 1031 Exchange.
The downleg (or relinquished property) represents the property to be sold as part of the 1031 Exchange.
The upleg (or replacement property) represents the property to be acquired in the 1031 Exchange.
Can I 1031 Exchange my co-ownership interest in a property?
Yes. A co-ownership interest is considered like-kind and should qualify for Section 1031 consideration. The percentage interest is not material, but the investor's interest in the property must have been held by the owner for the productive use in trade or business, or for investment (i.e., not personal property).
How long is the identification period?
An owner has 45 days from the date of sale of the downleg to identify like-kind replacement property, and then has 180 days to close inclusive of the 45 days-day identification period. The identification period terminates at midnight on the 45th day following the initial transfer date, regardless of Sundays or holidays.
What is an Exchange Accommodator?
The Exchange Accommodator, or 'Qualified Intermediary,' holds the proceeds of the downleg, or relinquished property, and monitors critical dates necessary to meet 1031 Exchange requirements.
Can one property be exchanged for several?
Yes. One or more downleg properties may be exchanged for one or more upleg properties, subject to specific rules and limitations.
When will gain or loss be recognized?
In a successfully completed 1031 Exchange, the gain isn't recognized until the owner otherwise disposes of the upleg property in a fully taxable transaction. There is no time limit, and if the owner continues to execute 1031 Exchanges, the gain may never be recognized.
Can corporations or partnerships Exchange?
Yes, providing they are exchanging real property for real property. The IRS specifically excludes stocks and partnership interests from being considered like-kind to real estate.
Can I exchange my co-ownership interest into a new property?
Yes, providing all 1031 Exchange regulations are followed.
What types of properties does Cal State Companies acquire?
We constantly reevaluate our acquisition strategy and existing portfolio to make sure that we strive to maintain the highest quality real estate and income streams for ourselves and our co-owners. This has resulted in various acquisition strategies throughout our history as economic and market forces have changed. Currently, we are looking to acquire apartment buildings in various markets throughout the United States.
What kind of Multi-Family properties does Cal State Companies buy?
We seek to purchase multi-family properties that are no more than 25 years old and are located in high-density or high-growth primary markets. It is important that the proposed market have a strong employment base with high barriers to entry and a significant disparity between home prices (mortgage payments) and rental amounts. The property should be stabilized within the marketplace and reflect market conditions accordingly.
Why isn't Cal State Companies currently buying Office or Retail properties?
We're not currently looking to purchase office or retail properties due to the high tenant improvement costs, higher vacancy rates, and their vulnerability in economic downturns. Office and retail properties also tend to have a higher probability of large re-tenanting or capital improvement expenses, which can impact cash flow and overall return to co-owners.
Why does it seem like the management fee on Cal State Companies properties is lower than I'm used to seeing?
Property management companies will typically discount management fees due to economies of scale. We constantly research property and asset management companies across the country to ensure the highest-quality and most cost-efficient management in the industry. Often, these firms will also discount their rates to potentially do future business with us. This savings is passed on directly to the co-owners.
What kind of due diligence is done on new acquisitions?
Our acquisition team hires independent, third-party due diligence firms to review all the due diligence materials, including historical occupancy and concession analysis, historical income and expense review, and the creation of the budget going forward. A property condition assessment by a qualified engineering firm provides each prospective co-owner with a detailed look at the physical condition of the property - from top to bottom!
How does Cal State Companies locate new acquisitions?
We constantly network throughout the country with commercial real estate brokers, private sellers and other industry professional to find new properties. Often, we will be approached by brokers or sellers that we have previously done business with, due to the professional and efficient nature of our acquisition and closing departments.