The TIC Advantage

So I'm reviewing my taxes sent by my CPA, and I noticed something amazing! 2007 is the first full year I've owned a TIC in Baton Rouge, so I didn't notice it last year.

A TIC is a Tenant In Common investment, where you buy a part of a large class-A apartment or commercial building that you own in common with other investors. You can 1031 exchange into or out of a TIC. It offers zero hassles, since all maintenance and management is handled by the company that put the TIC together. One thing I noticed when trying to buy 20 units in Texas is that no one wanted to manage it. The best managers are attracted to bigger projects, and the only way I way going to get this level of management was to buy a piece of something bigger. So the TIC offers great management and zero work on my part. Put the money in and get rent checks every month in the mailbox.

So back to the taxes. I was surprised by the whopping depreciation number that the TIC generated! Since I own a part of a massive building, I'm also getting massive depreciation. For $16,000 of income that I received, I only have to pay tax on $3000 of it!

To put this in perspective, let's say we buy a $300,000 rental house for cash (to keep this simple) and we get $16,000 a year in net rent. Depreciation would be perhaps $7272 a year based on $200K for the improvements, so you would be paying tax on $8,728. Own enough rental houses to get $100K in rent a year, and you will pay taxes on $54,550.

Now imagine you own TICs enough to generate $100,000 in income a year. You would be paying taxes on $18,750 or to put it more plainly, after a few minimal deductions, you would pay ZERO TAXES. Does this get your attention? Imagine getting tax-free rent checks in the mail every month to live the kind of lifestyle you want. What a great retirement plan!

This isn't some sales pitch for some wacko investment, this is a conservative strategy that just happens to have great tax benefits. I'm actually doing this myself. I don't sell TICs, so I have no self-serving reason for telling you this. I'm just passing along a good thing I discovered.