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Simply put, a 1031 exchange is a legal tax shelter that allows real estate investors to defer capital gains taxes on certain approved properties. This IRS-approved technique is a hot topic among investors and potential investors, and it’s easy to see why. Essentially, an investor can sell a property and invest in a new “like-kind” replacement property within 45 days, and then close escrow on the replacement property within 180 days in order to avoid paying some or all of the capital gains taxes until a later date. This kind of exchange can be repeated, ultimately deferring taxes indefinitely). Even fairly new or inexperienced investors can utilize this technique with the assistance and expert guidance of experienced real estate professionals who are well-versed in a 1031 Exchange. |
Why Perform a 1031 Exchange in Nashville, TN?
The most attractive reason for using the 1031 Exchange is to allow investors to trade up to another (often larger) commercial property while deferring capital gains taxes. Since the Nashville commercial real estate market is enjoying a current construction boom and increased population growth, the market is certainly attractive for savvy investors.
Consider these reasons for choosing 1031 Exchanges in Nashville, TN:
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Let’s say you’ve got an investment property that’s tough to finance (such as vacant land). Under the 1031 Exchange, you could trade up to an improved property that is easier to finance, which creates a way for you to get cash and trade from non-productive land to productive property, which could create more cash flow.
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Right now, Nashville is averaging 7.7% cap rates on office space priced at just $125 per square foot. You won’t find deals like this in Atlanta or Charlotte. What’s more, Nashville office space is increasing by leaps and bounds – a whopping 173% in the past 12 months, to be exact! During the past year, out of state buyers have accounted for 25 percent of all purchases in the Nashville area. Our commercial real estate brokers have largely contributed to this movement.
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Perhaps you currently own a number of smaller investment properties and you’d like to consolidate your efforts and exchange into a single, larger property
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Conversely, you might prefer to diversify from one larger property into several smaller properties, in an effort to improve liquidity
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Some exchanges are initiated in an effort to move from an investment property with high mortgage payments into a property with lower payments or a lower interest rate
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You might consider exchanging for a property that will be easier to sell, or to simply change the nature of the investment (for example, exchanging from a cash flow investment into a building you will personally use for your business, thereby saving yourself rental expenses)
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You might need to exchange high-appreciation rental real estate to high-cash-flow retail property, depending on you’re your specific investment objectives.
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Did you know that leases of 30 years or more can possibly be exchanged for actual real estate? These types of sale lease/backs have been allowed as exchanges in Nashville when handled properly.
Why 1031 Exchange and TIC Investing?
What is “TIC” Investing?
TIC is short for “Tenant in Common” and the practice refers to fractional ownership. Specifically, a group of investors would be sponsored and organized under a TIC structure, which enables the group to purchase a large commercial property. TIC investments are perfect for passive investors who have no interest in day-to-day property management, but are still attracted to the benefits of real estate ownership.
Why would I choose a TIC investment? For starters, TIC investments can be more affordable than a single-investor deal. Secondly, TIC investments share the full tax benefits and wealth preservation aspects of individually owned real estate. Additionally, TIC investments offer excellent cash flow without the hassles of daily management and personal involvement. TIC investors benefit from the ability to sell their interest to other TIC investors (or buyers outside of their agreement), plus long-term investment appreciation and all participants can benefit from a structured operational agreement. |
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How large is the TIC industry?
The industry continues to grow and is now estimated at more than $12 billion.
If I don’t manage the property, who will?
Typically a third-party property management team chosen by a vote of the TIC owners
Who will lease the property?
The commercial property manager (or assignee) generally handles the leasing in agreement with the budget parameters outlined by the asset management firm and is approved by TIC owners.
How will TIC owners be paid?
The property management company handles all disbursements and delivers a prorated share of monthly income to each co-owner in the TIC.
How would a cash call work in a TIC?
If operated effectively, cash reserves should be set aside to prevent a cash call, avoiding this occurrence entirely.
How do I sell my TIC?
No problem – you can sell to other TIC buyers, or to buyers outside of your original TIC agreement. The first step is to notify the asset manager, who will offer your share to the rest of the group. Once this first right of refusal has passed, you are free to sell to an outside buyer.
Can I exchange my TIC investment?
Absolutely. Be sure to follow all the regulations for a 1031 Exchange, of course.
What about due diligence for new acquisitions?
Excellent question – we contract a third party service to perform all due diligence, including occupancy history and concession analysis, reviewing historical income and expenses. Typically, our lenders will perform a second review of due diligence, mainly to be sure that our projections are in line with current contracts/leases.
What if the group loses one of the TIC owners to bankruptcy, death, or divorce?
These kind of life changes have zero impact on the TIC because the title is held within a newly formed, single-member, bankruptcy-remote LLC, protecting all co-owners as well as the lender.
I’m Ready to Invest in Nashville Commercial Real Estate
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Congratulations to you! Now, when you choose Corporate Realty Advisors as your brokerage house, you are well on your way to a financially sound and enjoyable real estate transaction. We specialize in assisting a broad range of clients, from individual wealthy investors to small groups of institutional buyers. We are experts at finding the ultimate deals including unlisted properties and commercial opportunities, and our Nashville commercial real estate brokers rank amongst the best and brightest in the Nation. Call us today to learn more about our commercial property management services. If you’re looking for commercial real estate to invest in, be sure to call the best Realtors in Nashville. |
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