Investment TacTICs

Tenant-in-Common (TIC) arrangements are one way that as an individual, you can have an interest in a large real estate investment. The investment can be any type of real estate, from large retail spaces, to offices, multi-family buildings, industrial properties, and much more.

In a TIC arrangement, you own a fractional share of the property. Similar to a share of stock, you are given a fractional share of the whole investment. A group of investors is organized into a TIC structure and is then able, as a group, to aquire a large property. Up to 35 owners can enter into this sort of partnership and each owner gets voting rights. Each partner is given a percentage interest in the property, and then receives this fractional share of cash flow, tax benefits, appreciation, and depreciation on the asset. The fractional interest in the investment is passed along to the owner's heirs, rather than being absorbed by the remaining owners, as a joint tenancy arrangement would work.

A TIC arrangement can satisfy the requirements of a 1031 exchange, if done properly. In 2002 this type of ownership started becoming popular after the IRS issued guidelines on how a joint property venture can satisfy a 1031 exchange. A 1031 exchange, for those who don't know, is an investment timed and structured in such a way that it allows the owner to legally defer the capital gains taxes on the sale of another property.

A TIC arrangement allows you to avoid the hassles of property and asset management (since a third party will have this responsibility), while reaping the benefits of real estate ownership. Additionally, by only owning only a small portion of one large property, this leaves the investor with additional capital to enter into other TIC arrangements in order to diversify their property holdings.

If you're interested in hearing more about how a TIC investment can benefit you, or how you can get involved in one, contact me! I have contacts at a company with a proven track record in structuring these types of deals.

MONTHLY MARKET STATS - APR 08

In the month of April, we saw an almost across-the-board increase in market supply, in what I believe to be a correction to the sudden supply drop of the previous month. A number of buyers were hit hard in April as mortgage restrictions tightened again, decreasing demand for homes. My prediction is that May will yield an overall stabilization in market supply, with the exception of the Near South where supply will significantly drop from this month. I attribute much of the Near South Side's increase in market supply to several developments that listed a number of units for sale in April, including 1555 S Wabash and 1211 S Prairie.

Based on currently available home inventory and units which sold & closed in the month of April, below you'll see the current amount of housing supply in various Chicago neighborhoods. Next to each neighborhood, I am indicating whether the supply has increased or decreased from MArch. The information I'm including is based on attached housing (condos/town homes). If you'd like another type of information, please contact me and I'd be happy to help.

North Center = 7 months (decrease)

Loop = 7 months (increase)

Lakeview = 8.5 months (increase)

Logan Square = 8.5 months (decrease)

West Town = 10 months (no change)

Uptown = 10 months (increase)

Lincoln Park = 11 months (increase)

Lincoln Square = 14 months (increase)

CHICAGO ENTIRE MARKET = 14.5 months (increase)

Near West = 15 months (increase)

Near North = 15 months (increase)

Near South = 23.5 months (increase)

Ever Wondered About... Closing Costs??

Especially for a first time home buyer, but also for a repeat home buyer, it may be difficult to estimate all of the costs involved in purchasing a property. Below I have itemized all of the approximate costs involved in closing a home for your reference.

Note that it usually costs you nothing to use a realtor when buying, except that if you don't, you might unknowingly overpay or miss some necessary details and paperwork.

Also, before getting scared away by the length of this list, keep in mind that this is an extremely detailed breakdown and many of these charges are VERY MINIMAL, some under $100. Add these to a mortgage financed over the span of 30 years and the additional burden is hardly noticeable.

- Loan Application Fee is paid to the mortgage company for the appraisal and credit report $350-550

- Final Inspection and Recertification of Value $75-$100

- Points may be paid to the lender at closing in order to "buy down" your interest rate

- Private Mortgage Insurance (PMI) is required when the loan is greater than 80% of the home's value. It runs about 0.52% of the loan amount annually, or higher if the loan is over 90%.

- Prepaid Interest - you pay interest on the mortgage from the date of closing through the end of the month

- Underwriting Fee is charged by the lender $250-$400

- Processing Fee is paid to the mortgage broker to process the loan $150-$200

- Document Preparation Fee is the cost to prepare the closing documents $200-$250

- Tax Service Fee is charged by the lender to obtain tax bills and monitor payment of taxes $60-98

- Flood Certification Fee is charged by the lender to determine if the property lies in an area at risk for flooding $25-$30

- Lender's Title Insurance Policy insures your lender's interest in the property is a first mortgage $150-$400

- Settlement & Escrow Closing Fee is paid to the title company to act as a lender's agent in handling the closing $100-$350

- Transfer Taxes vary by local ordinance but are $7.50 per $1000 of purchase price in Chicago

- Escrow/Reserves vary by month of closing

- Tax Reserve Fund, if required by the lender, will be a couple months worth of taxes put into escrow

- Attorney Fee varies by attorney $400-700 total or an hourly rate

- Recording Charges to record the mortgage and assign a mortgage and deed or release $60-$130

- Property Inspection is optional (but usually recommended) $250-$500

- Lead Based Paint Inspection is optional $200-$350

- Homeowner's Insurance varies by location and property

- Service Release Premium is compensation paid by the lender to a mortgage broker 1%-1.5% of loan amount

FHA/VA Loans may also include:

-Commitment Fee charged by the lender to lock the rate and points $250

-Mortgage Insurance Premium paid to HUD to insure mortgage against default. A one-time premium is required on all single-family and 2-4 units of 2.25% of loan at closing. Annual premium is .5%, paid monthly on all property types.

- Origination Fee charged by the lender 1% of loan amount