While commercial real estate holds the promise of steady rental income, it’s not without its unique set of challenges. Picking the right property in a great location is a tricky endeavor, but that is just but the beginning. Filling the property with quality, trouble-free tenants is the hardest part.
You need to vet each tenant to ensure they are credible and capable of raising the rent. You also need to keep the property in great shape while managing tenants’ needs and expectations. If you are keen on avoiding hassles in the sector, consider getting into tenants-in-common (TIC) real estate.
Hands-Free Management Settings
Thanks to the section 1031 of the tax code, you can trade your commercial holdings for another property of equal or greater value. In a TIC property exchange, you get to trade a troublesome property for a slice of larger, top-grade one.
For instance, you can sell your small apartment block for $500,000 and channel the sales proceeds to buying an institutional grade property. Obviously, that amount is not enough to buy a multi-million-dollar complex. So, you get to buy a share in the property equal to your capital investment.
Buy Bigger Equity
Now comes the best part. Each property sale is subject to capital gains tax, which can be as high as 40 percent. In a property exchange, you get to defer the tax. This means you can channel the entire half a million dollars towards the next purchase.
With proper financing, your sales proceeds could buy you, say, a million-dollar interest in the target property or properties. With one exchange, you’ll have managed to double your net worthwhile escaping the property management hassle.
In such an arrangement, you’ll have no management roles, but the income checks will follow you like clockwork.
Property management is a crucial but painstaking part of investing in the real estate sector. By taking part in a TIC property exchange, you could reap the benefits of the sector without taking up any management roles.