In Real Estate Investing, Keep it Simple - Marsha Marsh Real Estate ...

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In the cycle of investment life?boom, bust and aftermath?the lessons only become clear after it?s too late.

So it goes with a once-hot real-estate investment that has left wreckage in its wake and a fresh reminder: When there?s a simple way and a complicated way to solve a problem, the middleman will almost always make more money off the complicated solution?but you might not.

Between 2004 and 2008, investors bought $13 billion worth of securities often called tenancies-in-common, or ?TICs,? according to OMNI Real Estate Services of Salt Lake City. Also known as 1031 exchanges after a part of the tax code, TICs are complex deals that enable the sellers of real estate to roll their proceeds over into other properties without incurring capital-gains tax. TICs were tailor-made for a real-estate bubble.

The deals were structured as privately placed securities that don?t trade; up to 35 investors can own stakes in a TIC, while a newer format can be held by up to 499 investors. The buyers get a stake in the rental income?and potential sale?of one or more commercial, retail or residential properties.

Properly structured, 1031-exchange securities can enable investors to shelter real-estate sales from capital-gains taxes, to obtain regular income and to bequeath the asset to their heirs in a tax-efficient manner.

But Wall Street took an idea that is suitable only for a limited number of specialized, wealthy clients and sold it to ordinary investors?in some cases with disastrous results.

Consider what happened to Mary Boston, 70, of Dunlap, Tenn. In 2007 she and her husband, Lavaughn, sold their local theater for $1.2 million, net of debt. Their tax preparer suggested that a financial adviser might be able to help them arrange a 1031 exchange.

The couple sank the $1.2 million?essentially their entire liquid net worth?into two TICs that gave them a stake in two apartment complexes, one in Georgia and one in Texas. The offering documents projected an annual yield of 6.5%

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Source: http://www.marshamarsh.com/Blog/In-Real-Estate-Investing-Keep-it-Simple

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