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New Creative Real Estate Investment Twist Takes Off!

There�s a new way large commercial buildings are being bought and sold. The birthplace of the idea was Orange County, California...and it�s quickly become a multi-billion-dollar industry.

The novelty is viewing real estate as securities, like stocks and bonds. Succinctly, multiple investors join together taking title to purchased buildings directly, through the age-old tenancy-in-common (TIC) form of ownership (rather than through a corporation or partnership].

Tenancy-in-common dates back to English common law under which an unmarried couple, for example, could buy a home and be able to share rights in the property. These days, many TIC investors are seeking to delay paying capital gains taxes when they sell. They can do so under the 1031 tax code, as long as they buy a similar property within in a certain period. 

The TIC industry took off after the IRS weighed in on the trend in 2002. The agency outlined 15 distinctions between a tenants-in-common relationship and a limited partnership, which doesn�t shield investors from capital-gains taxes. It further determined a TIC can include up to 35 investors. (In such an instance the property is typically managed and investors collect dividends.)

These endeavors are for the long-term, inasmuch as there is no secondary market for tenant-in-common securities. Plus unanimous consent of all investors in a property may be required to sell it. Yet its growth is evidenced by the fact that in 2001 investors placed $165 million of their money into TIC transactions. Last year, 2005, it was $3 billion.

(Two Orange County companies have played a critical role in developing the tenant-in-common industry�Triple Net Properties in Santa Ana and Passco Companies in Irvine.)