Tenants In Common Planning Points

1. Investigate the Sponsor of the Tenants In Common deal: Many sponsors are large national companies with extensive real estate experience. The success of the investment is largely dependent on the skills and expertise of the sponsor. You should investigate the sponsor’s track record, focusing on prior Tenants In Common programs and real estate funds. Also, confirm whether the sponsor will continue to be involved in the operation of the real after all the Tenants In Common units are sold.

2. Analyze the Real Estate: Most of the documentation pertaining to Tenants In Commons is peppered with securities type language, but you should not lose sight of the fact that the underlying investment is still real estate. In addition to projected rate of return referenced in the prospectus, you should also focus on the real estate. Remember that old adage that the three most important things in real estate are location, location and location.

3. Fees and Expenses: All Tenants In Common offerings will involve upfront fees to the sponsor and various costs associated with the offering. In addition, there probably will be fees with respect to the management and disposition of the property. A potential investor should examine these to make sure he is comfortable with such.

4. Existing Leases: The rate of return achieved by the Tenants In Common investment is generated by the rent paying tenants. Accordingly, it is imperative that you or your advisor review the leases and the financial strength of the tenants. The financial strength of the tenant will be particularly significant for long-term tenants. Issues concerning short-term leases include whether the tenant will renew and at what rates, or whether the space would be attractive to other tenants and at what rental rate. You should also determine whether current rental rates are above or below market. If they are above market, and helping to generate a certain rate of return, you should be cognizant of the fact that a future tenant may pay less rent thereby lowering your rate of return.

5. Tax structure: In order for a Tenants In Common interest to qualify as replacement property for 1031 purposes, it must, in the eyes of the IRS, qualify as real estate and not a partnership interest or other type of security. Most of the sponsors of nationally marketed Tenants In Common programs have obtained opinion letters from tax attorneys stating that the tax structure of the Tenants In Common qualifies for like kind exchange treatment. Where there is no opinion, you should have your tax advisor review carefully the tax issues.

If you have any questions about performing due diligence for Tenants In Common programs, please give us a call at 1-877-395-1031.