Potential Advantages of 1031 TICs*
1031 TIC Investment Advantages
Generally, 1031 exchanges and TICs are attractive in that they allow:
- Greater investment. Because capital gains taxes are deferred, the investor has a higher adjusted basis, creating greater leverage, than if the tax liability was paid on a current basis. This may increase the investor's available equity for reinvestment.
- Diversification. One large property can be exchanged into many TIC properties, offering additional asset and geographical diversification.
- Compounding Effect. A property owner who conducts multiple 1031 exchanges and makes unrealized gains on each exchange will be able to reinvest the deferred capital gains on each subsequent exchange. A property owner who holds exchanged property until death avoids the deferred tax liability and his or her heirs inherit the property with a "stepped-up" tax basis.
- Pricing Flexibility. An investor can experience greater pricing flexibility because the sale price of the relinquished property will not need to be inflated to cover capital gains taxes. This enables the seller to have increased flexibility with the selling price on the relinquished property without requiring the investor to contribute additional cash to defer capital gains taxes.
- Property Life. An investor can exchange property that has reached a plateau for one that is on an upswing; an unproductive property can be exchanged for an income-producing property; a property that has been depreciated can be exchanged for a more expensive property which has more room for additional depreciation.
- Institutional-Grade Properties. An investor can access ownership in larger commercial properties that have traditionally been accessible only to very wealthy individuals, pension funds, insurance companies, and other institutional investors. TICs may allow a client access to ownership in commercial properties that they may not otherwise be able to afford.
- Access to Pre-packaged Choices. OMNI has relations with sponsors who are offering properties for which they have generally already arranged financing, completed initial due diligence, and commissioned appraisals and environmental reports, prior to the property being presented to investors.
*Obviously, it is not realistic to identify all of the potential advantages or risks that an individual investor may encounter in a particular 1031 TIC.