Tenants-In-Common
Section 1031 Tax-Free Exchanges - Continued...
Most
people do not understand the tenants-in-common ownership approach and
are therefore approaching the matter with grave doubts and
trepidation. This is to be expected but potentially unnecessary
drama.
The
tenants-in-common ownership approach provides the opportunity to have
multiple owners sharing an interest in a given piece of real property
(real estate). If you are participating in a syndicate that
purchases $2,500,000 in real property interests and then divides the
ownership based upon each investor's proportional ownership share based
upon their contributions. The syndication approach sets forth that each unit shall be in the gross
amount of $25,000.00, so a $2,500,000 syndication would have 100 units
available. If you own one (1) unit, then you own a 1.00% deeded
ownership interest.
That's
right. Deeded. In a tenants-in-common ownership structure,
each owner of record has a separate deeded ownership interest.
The
syndication program requires the syndicate sponsor (the developer and/or
owner/operator, as the case may be) to pay all property taxes, insurance
costs, maintenance and repair costs associated with the property as part
of the property's routine operating expense disbursements. You
receive a check for your distribution share. Each month that
operations are undertaken, there will be a distribution of all profits
from operating and non-operating activities. The amount is based
upon the business deal each syndicate sponsor (developer, owner or
owner/operator, as the case may be) makes with the syndicate BEFORE any
investor funds are accepted. These goalposts do not move. If
the syndicate sponsor does a lousy job (misses distributable earnings
targets) then you can have the sponsor replaced. We're talking
about your money here, so protections must be provided. On the
other hand, if the syndicate sponsor is delivering on par (or greater
than par) earnings, then you sit tight on the sidelines and cash the
checks that come your way.
