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Normally an exchanger has a whole piece of investment property to sell. He sells and closes that property, the money goes to the exchange company, the investor identifies a new piece of property within 45 days, and closes on that property within a 180 days. As long as you’re adept at evaluating investment properties, and you can accept the risk on a single piece of property, this system works well.

But what if you’re the type of guy that would rather buy a mutual fund than a stock? Let somebody else do the math, the management, and base your investment on the strength of their pro forma and analysis. If this is the case, then a 1031 TIC may be for you. In this scenario, you’re not buying a whole piece of property. You evaluate a pro forma submitted by a “sponsor” who is looking to raise a target amount of capital secured by an undivisible interest in a particular property. There is normally a minimum investment amount you can 1031 into the property, and a maximum amount of capital that is looking to be invested. Multiple owners come in through multiple closings. The performance of your investment is usually controlled by a put-call agreement and by aggregating together with the other investors are able to buy a more valuable piece of property than you would normally be able to purchase that, theoretically, may have a higher return on investment than a property of less value. At some point in the future, the property is sold, or your interest is purchased, and the tenants in common 1031 into their next investment.

There are a number of people in Central Oregon putting these kind of investments together. If you would like their names and numbers please contact me. For more information check out http://en.wikipedia.org/wiki/Tenants_in_common_1031_exchange

So it looks like some of the 1031 money is running scared. What I’m hearing is that several exchangers are entering into their 45 day identification phase, not finding a replacement property, and then canceling the exchange. That’s probably not surprising. Right now we are near historic lows on the capital gains tax, so the fear of taking a tax hit is offset by the fear that you’ll purchase a piece of real estate that is overvalued or declining. There are still exchangers out there that because of depreciation and multiple 1031 exchanges are at risk for suffering a much larger than average tax penalty, but it’s becoming harder and harder for them to find a decent replacement property that can believe in. This is creating some creativity in the kinds of properties people are looking for. More on this later…

Often in business I am approached by people giving me advice on a variety of topics that they do, or should, have expert knowledge in. When confronted with such expert testimony on the prudent direction of a decision you are in position to make, you often feel like the wise thing is to follow these sages. More often than not, I later find out that what I was gambling my fate, and the fates of those around me on, was nothing more than a gut feeling of some person who’s credentials were not nearly as clear to me as they should have been. What I need is insight. Use intuition when it’s only your skin on the line.

Ok. After almost 2 years of no posts, I am going to attempt to be better about contributing to this blogging exercise. I’ve been thinking about getting back into the swing of this for a week or so, but have successfully procrastinated each and every day. I have a desire to share ideas, receive feedback, and generally have fun with this. Alas, my best ideas always strike while I am away from my computer. This posting, while having no intellectual content, is an affirmative step in the right direction. If you run across this, and have a word of encouragement, it will be most appreciated.