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Partial Ownership Interests

Partial Ownership Interests

Investing in a DST (Delaware Statutory Trust) or TIC (Tenants In Common) Property

A DST or TIC is a form of real estate ownership in which multiple persons have an undivided, fractional interest in a property. A DST or TIC interest qualifies as like kind property in a real estate exchange and during the past few years has become an attractive alternative for many exchangers.

Characteristics of DST and TIC interests

DST and TIC ownership shares are not required to be equal. Each co-owner receives an individual deed for his or her undivided percentage interest in the entire property and shares “pro rata” in the income, tax benefits, and possibly the appreciation of the property.

Reasons for considering DST or TIC ownership

Through DST or TIC ownership, an investor can purchase ownership in an institutional-type property with a minimum investment. These properties can attract tenants with greater financial strength and stability than possible for the individual landlord which can produce more reliable income and growth potential.

The mortgages on some DST and TIC properties are non-recourse, so there is no personal liability on the loan. The loans are also usually assumable by an individual investor allowing the investor to structure an exchange so there is no reduction in debt which could result in taxation.

DST and TIC properties are typically managed by large, well respected management companies.

Due to the low minimum investments typically required for DST or TIC properties, a buyer can decrease risk by diversifying into different properties in various geographic areas and types of property.

When a property is offered for DST or TIC investment, the negotiation process is typically complete, and survey, rent rolls, etc. are completed and available for review. All due diligence inspections are complete and ready for review. The closing can be completed in days, not months.

DST and TIC owners typically receive monthly rental payments, sometimes sale proceeds and the depreciation tax benefits in proportion to their percentage ownership in the property.

If an exchanger has only one primary property identified as replacement property and does not want to invest the time or incur the due diligence expense to identify a second or third property, identification of a DST or TIC interest provides insurance if the primary property cannot be purchased.

How do you exit a DST or TIC investment?

Each DST or TIC sponsor has established their own requirements for exiting the investment.  You should always inquire about your exit strategy prior to making the investment.  Typically, there are two ways to exit: one, sell your interest to another owner: or two, wait for the DST or TIC to sell the property. When a DST or TIC interest is sold the seller can elect to pay the tax due on any gain or set up another exchange and roll the equity into another DST or TIC investment or any other real estate investment