Evaluating Tenant-In-Common Interests in Real Estate‪.‬

ONE OF THE MOST COMMON CONCERNS U.S. INVESTORS AND their professional advisors face when structuring tax-deferred exchange transactions is the difficulty in locating, identifying and acquiring like-kind replacement properties within the unforgiving tax-deferred exchange deadlines. Because many investors wait until the closing of their property sale to start the search for properties, the tax-deferred exchange deadlines already are imminent. Investors are under the gun, and are forced to rush the search for suitable properties and shorten the due-diligence period. Section 1031 of the Internal Revenue Code places strict time constrictions and rules on designating like-kind replacement properties. Investors typically designate no more than three replacement properties--given the difficulty making a proper identification under the rules--and because of the time limit, they typically evaluate only local or regional properties of the same asset class. Though this manner of identification could meet investors' goals, replacement properties chosen in haste are likely to have the same problems or conditions that originally motivated the investor to sell the relinquished property--inflated sales prices, poor cash flow or intensive property management requirements, for example. Often, investors ultimately face a tough choice: purchasing less-than-ideal properties to complete the tax-deferred exchange or letting the exchange fail and continuing the search for replacement properties that make sense outside 180-calendar-day deadline.