Frequently Asked Questions about Real Estate Investments

Calculator Resource LinksFAQsKey Terms IRS Code 1031 Exchange

Here you’ll find answers to the questions we hear most often from investors. If you don’t find what you’re looking for, please contact us. An INVERNESS Real Estate Investment Consultant will be happy to help.

1. Who is INVERNESS Real Estate Investments?
Previously known as 1031 Exchange Options, INVERNESS is a national real estate investment consultancy recognized for our expertise in investments structured for co-ownership. We advise clients on 1031 exchanges, Tenants In Common (TIC) ownership, Delaware Statutory Trust (DST) investments, REITs, Diversified Funds, LLCs, and other real estate investments.

Back to Top

2. What services do you provide?
INVERNESS provides several types of co-ownership real estate investment options for individual investors: Tenants In Common (TIC) ownership, Delaware Statutory Trust (DST) investments, REITs, Diversified Funds, LLCs, and other real estate choices. Our Real Estate Investment Consultants work one-on-one with investors throughout the entire investment process to identify and acquire suitable properties or investment opportunities for their portfolio.

We have assisted clients with investment property consulting since the mid-1990s, including the acquisition of a property through a 1031 exchange. Our experts are extensively experienced with the 1031 exchange process, and can help ensure that all of the IRS's scheduled requirements and deadlines are met.

INVERNESS is headquartered in the San Francisco Bay Area and provides real estate investment consulting to clients nationwide.

Back to Top

3. What is a Tenants In Common Investment?
Also known as Co-ownership of Real Estate (CORE), a TIC-structured investment enables a group of up to 35 investors to co-own a single, institutional-grade property. TIC-structured investments can offer substantial tax advantages, monthly income, and other benefits. Because of their ability to close quickly, they can also be ideal choices for successful completion of a 1031 exchange.

Learn more about TIC Investments

Back to Top

4. What kind of potential returns can be expected from a Tenants In Common property investment?
Initial cash flows and overall annual returns (including cash flow, appreciation, and principal reduction of the non-recourse financing) vary from property to property.

Back to Top

5. What is the typical number of TIC investors in a property, and what is the range of investment dollars required?
Reg “D” and IRS guidelines dictate that there can be no more than 35 investors in a single property. The typical structure has from 18-25 Tenants In Common investors in a property. The minimum equity amount varies depending on the property, the amount of equity being raised and the number of TIC investors. Typical stated minimum investments range from $200K to $650K, though some of the larger properties will have much higher stated minimums.

Learn more about TIC Investments

Back to Top

6. What types of ownership approvals are required for various decisions regarding a TIC property, such as leasing, refinancing and sale?
In Tenants In Common and Delaware Statutory Trust structures, the real estate provider, acting as property manager, will make the day-to-day decisions allowed under the management agreement or master lease. The Tenants In Common owners are involved in major decisions, such as approving or rejecting leases, a refinancing, or a sale. Unanimous approval by the owners is required for all major decisions affecting the property.

Learn more about TIC Investments

Back to Top

7. What due diligence is performed prior to the purchase of a Tenants In Common property, and what is the timeframe for investor review and approval?Several layers of due diligence are performed prior to the presentation of the investment opportunity to potential investors. The first level is performed by the real estate provider, who evaluates the asset to ascertain that the property can achieve desired return and appreciation potential. This is conducted by experienced members of the real estate provider’s acquisition team who investigate and evaluate all aspects of the property, including a thorough assessment of the physical, intrinsic, and financial aspects.

Next, a lender is selected. The selected lender, who is an independent third-party, performs its due diligence to determine the property's ability to comfortably repay the mortgage obligation.

The final level of due diligence is conducted by representatives at INVERNESS’ broker/dealer, based on the quality of the asset, the income stream, and the strength of the leases, and the viability of the business plan.

After all of this, the property is suitable for presentation by an INVERNESS Real Estate Investment Consultant to individual investors, taking into consideration all of the investor’s unique investment goals, requirements, and experience.

Learn more about TIC Investments

Back to Top

8. Why would someone want to conduct a 1031 exchange?
1031 exchanges provide an ideal solution for investors who choose to keep real estate in their investment portfolio and want to:

Take advantage of dormant equity "locked" in their income properties.
Defer the punitive capital gains and depreciation recapture taxes due when selling investment properties.
Explore institutional-grade property investment options.

Learn more about 1031 exchanges

Back to Top

9. What are the benefits of a 1031 Exchange?
A 1031 exchange allows an investor to sell an investment property and defer capital gains and depreciation recapture taxes by reinvesting 100% of their equity into another "like kind" property of equal or greater value. Investors can use their existing property holdings to trade up into a larger, institutional-grade, co-owned property, which offers all the benefits/risks of real estate investment, but eliminates the headaches of day-to-day property management.

Learn more about 1031 exchanges

Back to Top

10. What is the difference between exchanging an investment property for a Tenants In Common or Delaware Statutory Trust investment and simply exchanging for another sole-owned property?
The difference is the financial and lifestyle objectives of the real estate investor. The investor needs to answer the following question, "Do I want to continue to manage property, or do I want to delegate the day-to-day management to professionals?"

The TIC structure includes professional property managers to take care of the mundane tasks of collecting rent, performing maintenance, and interfacing with tenants, while still allowing the investor to participate in the majordecisions. By exchanging for a fractional interest in a Tenants In Common property, the investor gains access to larger, institutional-grade properties, such as an office building, a drug- or grocery-anchored shopping center, multifamily apartment community, warehouse/distribution, or industrial property valued anywhere from $5 million to over $150 million. Investors can also diversify their equity among several property types and geographic locations through fractional ownership.

Learn more about 1031 exchanges
Learn more about TIC Investments
Learn more about Delaware Statutory Trusts

Back to Top

11. What is a Delaware Statutory Trust?
A Delaware Statutory Trust, also known as a DST, is an unincorporated association governed by a trust agreement. The DST has a separate legal existence and can conduct business in its own name, including the purchase of commercial real estate. DSTs offer a unique combination of flexibility and asset protection, and can also qualify to complete a 1031 exchange.

Learn more about DSTs

Back to Top

12. What is a REIT?
A REIT is a corporation that owns a portfolio of multiple investment properties. Investors in the REIT own shares in the corporation and receive 90% of the income from the properties in the form of stock dividends.

There are hundreds of different REITS, that own the full range of property types. REITs offer investors the potential growth and stability of a broad real estate investment portfolio. And unlike sole-owned real estate, In the case of publicly traded REITs, investors have relatively quick access to their assets.

REITs are not a suitable 1031 exchange vehicle.

Learn more about REITs

Back to Top

13. What is a Diversified Fund?
A diversified fund is a select collection of various real estate holdings, often including Tenants In Common (TIC) properties. Investors purchase investment units in the fund and potentially receive a return on investment from the cash flow generated by the fund’s properties, less any management fees. While diversified funds can be an attractive way to sample a particular real estate provider’s TIC business plan, they cannot be used to complete a 1031 exchange.

Learn more about Diversified Funds

Back to Top

14. What is an LLC?
An LLC - Limited Liability Company - is a corporate structure where members of the company have limited liability for the firm’s actions.

Investments in LLCs can have similar attributes to investments in diversified funds, including extensive due diligence and the potential for monthly cash flow. The main difference is that an LLC is an investment in a specific property, instead of a group of real estate holdings as part of a fund. LLCs can provide a simple means of diversifying an investment portfolio with real estate.

LLCs cannot be used to complete a 1031 exchange.

Learn more about LLCs

Back to Top