TIC Liquidity And Exit Strategy: Not The Same Thing
Despite other kinds of investments, TIC (tenant in common) exchanges are noted for their distinct lack of liquidity (also known as "marketability"). This is one reason why you need an ext strategy that doesn't rely on liquidity because the odds are, it's not going to be there. TIC liquidity and exit strategies do not go together.
The Word For The Day
Liquidity is the word for the day, kids. This means being able to take stuff that you have and turn it into cash quickly. If you have blue chip stock, then you have no liquidity problems. But TIC liquidity is almost a contradiction in terms. There just aren't as many people who want to buy into TIC shares than there are who want blue chip stocks. There are even less buyers if the real estate market is well, like it is today.
Also, there are tax problems with trying to convert your property to TIC liquidity. Exit strategies must not only exist for you as an individual, but also for your TIC partnership as a whole. If one partner goes down, he or she can easily drag down everyone else, too. The IRS is not very sympathetic to whatever problems you and your partnership may be having.
A Bad Plan
This is an example of TIC liquidity and exit strategy being considered as a quick fix to a financial problem. A group buys a strip mall and things are going well, but suddenly all the store owners leave and repairs need to be made. You need to get out from under this white elephant. You and your partners long to sell.
So you do (if you can find a buyer). But TIC liquidity and exit strategies now prove their differences. You can't get anywhere near your asking price. Perhaps the buyer will take over the existing debt. Even if the buyer does, you still will have lost a heck of a lot of money. You haven't exited so much as surrendered while your ship was sinking.
But the odds are that you will have the strip mall on the market for years and not be able to find a buyer. In the meantime, there are no tenants, no rent payments, but lots and lots of bills. In this case, you do not have TIC liquidity or an exit strategy that can help you financially in any way (in case a miracle happens).
Related Tags: 1031, 1031 exchange, exit strategy, tenants in common, tic, tic liquidity
Kathryn R. Landry is a business writer for TIC Advisors, Inc. A company that can give you the most complete information on a 1031 exchange or TIC property ownership.
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