It is human nature to be skeptical of the unknown. We often forfeit the substantial benefits of a potentially promising “thing” due to the uncertainty of what is required in order to receive that benefit. But when the process is laid out before us, the uncertainty disappears and enables us to move forward with confidence. That is often the case with Tenant In Common properties and buyers, like yourself, may be hesitant to pursue a good property past the initial photo because the process it will take for you to get that property is not clear. The following is a brief outline of what to expect from start to finish when investing in TIC Co-Ownership property.
THE PROCESS:
It begins with you or your broker contacting a representative from the sponsor that is offering the TIC and beginning what may be a series of phone conversations and emails asking questions about the property or properties you are interested in. That representative from the company and a closing coordinator will typically accompany you through each part of the purchase process to ensure all questions are answered and full disclosure of materials is provided so you can move forward with confidence into your new investment.
The Steps:
1) Fully execute the Reservation Form and send it back to the Sponsor. This action secures a time-sensitive reservation. Reservations are made on a first-come first-serve basis and the Reservation Form provides a time stamp so the sponsor can assure you the amount you requested.
2) Once the Reservation Form has been received, the sponsor will notify you that your reservation has been accepted and will send you documents to be reviewed/executed. Typical documents may include:
A. TIC Purchase Agreement
B. Offering Memorandum/Private Placement Memorandum
C. Tenancy in Common Agreement
D. Rights Agreement
E. Property Management Agreement
F. Brokerage Agreement
G. Credit Authorization Form
3) With the above mentioned documents, you will also receive Due Diligence materials. These may be provided to you in printed form or through a username and password which will allow you to access the materials hosted on a website.
**Important – For some sponsors, a Due Diligence Review period of a specified number of business days will begin upon your receipt of the above mentioned documents in e-mail or print form and terminate on the specified date and time stated by the sponsor. In order to move forward and lock in your reservation, you will typically be required to send into escrow the full equity investment by the end of the Due Diligence Review period or soon thereafter, or if funds are with an accommodator, at least a 10% non-refundable deposit. This will guarantee your requested amount of equity and lock in your reservation.
4) Once the documents referenced in item 2 have been received, you will be asked to return certain documents and may be asked to provide additional information, such as:
A. Fully executed Purchase Agreement
B. Entity documents (trust documents, LLC or corporate documents of purchasing entity)
C. Credit Authorization Form
D. Copies of tax returns
E. Financial statements
F. Any other lender/Sponsor requirements
5) Upon review of the received documents (item 4), legal counsel will prepare Ancillary Documents which will be sent to you for signatures in preparation for closing.
6) Escrow and the Sponsor will work together on finishing all pertinent closing documentation.
7) At this point, if you are doing a 1031 exchange, you will need to make arrangements with your Qualified Intermediary to get all of the documentation they require executed and returned to them in preparation for the remaining funds to be transferred into escrow a few days prior to the scheduled closing. If you are submitting a cash difference to make up the balance of the entire investment, the balance must be deposited into escrow at this time as well.
The Sponsor will coordinate with investor, broker, QI, and escrow in tracking the closing of escrow in order to ensure closing occurs in a timely manner.
9) The Sponsor will typically create a closing binder of transaction documents to be sent to you, generally within thirty (30) days after close of escrow.
When purchasing co-ownership interest in a TIC, the Sponsor should have it as a priority that the process is as clear and as simple as possible. The main reason for purchasing a TIC is the ability to own great real estate without the hassle of management. It really is a lifestyle change, and a change for the better. So shouldn’t that change begin with the first encounter with the Sponsor?
Please note: The steps and processes outlined in this article are specific to TIC properties offered through TREC Investment Realty and will likely vary slightly from sponsor to sponsor.
Article by: Damon Luke
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