How To Choose A TIC Investment Property

2. Does the sponsor have an organization, staff and infrastructure to properly close the transaction (if not already owned by the sponsor) and manage the TIC?

3. What kind of property is the TIC (retail, office, residential, industrial/warehouse, and is it located in a primary, secondary or tertiary market, etc.)?

4. What are the demographics of the area in which the property is located (population growth in the area where the property is located), declining or improving area where the property is located, competition, surrounding rent rates, etc.) of the area in which the property is located, and is the market area a primary, secondary, tertiary, etc?

5. Does the sponsor already own the property, or will it close on the property with the TIC investors’ funds.

6. What is the closing date (if not already owned by the sponsor) and what is the sponsor’s ability to close if the offering is not fully subscribed (remember, if you are a 1031 Exchanger, you must identify within 45 days, you can’t change or add to your identification list after the 45th day, the best identification is to actually close on your replacement within the 45 days, etc.)?

7. What is the total “equity raise”, how much of the offering has already been bought by investors, how much is left and how long has the offering been on the market?

8. What is the purchase cap rate and what is the cap rate for sale of TICs to the investors (“loaded cap rate”)?

9. What is the projected exit cap rate (when the property is resold) and is it larger or smaller than the purchase cap rate and the loaded cap rate and, if smaller, why does the sponsor believe the property can be sold at a cap rate lower than the other “going in” cap rates and, if so, why?

10. What is the “load” (percentage and dollar amount) the sponsor is placing on the property (in other words, how much is the sponsor marking up the property for resale to the investors), and what is the sponsor’s purchase price and the total sale price to the investors?

11. Does the sponsor have an appraisal for the property, and is it higher or lower than the sponsor’s purchase price and the total sale price to the investors?

12. What is the TIC purchase minimum (some are below $200,000 and range up to over $1 million)?

13. Why did the sponsor choose the property out of the hundreds most sponsors look at before making a decision to buy?

14. Are there any major tenant lease expirations or exits during the projected holding period and, if so, what reserves are being set up for down time and new tenant improvements?

15. What is the “play” (in other words, is the property a one credit tenant occupied triple net property with a long term lease thereby providing a stable return to investors, is it in an improving area where the sponsor thinks values are increasing, is there some vacancy the sponsor thinks he can fill and thereby increase returns, etc.—what was the strategy)?

16. Why did the seller sell the property?

17. When was the property built and, if applicable, when was it renovated, and is there any deferred maintenance (roof condition, paint, HVAC, parking lot, etc.)

18. What is the amount of mortgage being placed on the property by the sponsor (loan to value ratio or LTV), and what is the interest rate, and is it fixed or variable?

19. Is the mortgage interest only for a period of time and, if so, how long?  The longer it is interest only, the longer before the mortgage will begin reducing and equity will begin to grow, and when does it mature, etc. (and is there a refinancing anticipated during the holding period before resale)?

20. Is the property located in a high or low income tax state? What is the total cost of annual upkeep (franchise fees, etc.) for the investor’s TIC LLC (to what states will such annual fees need to be paid, and how much to each state)?

21. Is the property residential (greater depreciation deductions) such as apartments or non-residential like office, retail and warehouse/industrial? Has there been a cost segregation report so that there will be component depreciation thereby increasing write-offs. Is there a ground lease that would, therefore, make more of the property purchased depreciable? What percentage of the total purchase price has been allocated to improvements that can be depreciated?

22. What is the exit (resale) strategy, which normally is between five and seven years, but can go out ten years and what is the projected cap rate at exit that will ensure that the TIC investors will receive back all of the money they invested (compare to sponsor’s purchase cap rate and the “all in” cap rate the TICs pay)?

23. Do the pro-forma projections for operation (income and expense) make sense (look out for overly rosy occupancy and rent increase projections, declining costs projections, etc., but these things can differ depending upon the “play”, etc.)?

24. How do rents compare with similar properties in the area (market rent) and how does vacancy compare with similar properties in the area (market vacancy)?

25. What kind of tax opinion supports the TIC and the expected tax result (it is in the PPM, and should be a so called “should opinion” from a major lawfirm)?

26. What are the closing costs (almost all TICs have closing costs, and some are more than others—they usually run from zero to $5,000), and what is the annual TIC LLC maintenance/registered agent fee?

27. Is there a master lease (sponsor, or an entity formed by the sponsor, leases the property from the TICs and then subleases to the tenants) or is there a management agreement, but the TICs are landlords to the tenants of the property? If a master lease, how is the master lease performance guaranteed?

28. What is the operational stage management fee, and any other fees charged during the operational stage (between purchase and resale), and is it broken down between management fee and asset management fee, and is any of it performance based (a bonus)?

29. What is the “back end” fee or broker commission, etc. that the sponsor will receive on resale of the property (varies from around 2% to around 6%, generally the lower the better)?

30. Is there a repurchase option (repurchase options may allow the sponsor to “have his cake and eat it too” by selling to TICs now, but calling the property back at some later date based on a variety of formulas)?

31. What is the cash-on-cash projected return for the property for each year during the projected holding period before the sponsor’s business plan projects that the property will be resold? Are these realistic assumptions based upon rent growth, operating expense increases, etc. (aggressive or conservative)?

32. Price per square foot? Is it competitive with comparable sales of similar properties, is it under market, etc.?

33. Credit tenants or less than credit tenants, percentage of each, etc. (quality of tenants overall)?

34. Occupancy level (and economic occupancy, if different)?

35. Is property considered “Class A”, “Class B” or “Class C”?

36. Special Tenant Information (early termination clauses, flat leases, etc.)?

37. Does the sponsor intend to continue to own any percentage of the property and, if so, how much?

38. Are there reserves established for the property, and are they established from mortgage loan proceeds, TIC investor funds or operations?

39. For the last up to five TIC transactions of this sponsor, has there been any investor dissatisfaction (return was not what was promised, communication issues, etc.)

40. Does the mortgage loan have any recourse carve-outs applicable to the TIC investors?