TIC, or Tenants in Common, is basically a way of sharing ownership of property among two or more people, and is one of the most popular investments in the world of real estate today. With this investment, each of the tenants involved holds an interest in the specific property, and tenants in this ownership may be established in many different ways.
There are many benefits that come from owning property as TIC, but it is also important to be aware of the risks that are involved, such as the TIC: cash flow risk.
TIC: Cash Flow Risk
There are a few different issues that need to be understood when it comes to the topic of TIC: cash flow risk. For one, the qualified intermediary cannot distribute the tax-deferred like-kind exchange funds if the disbursement would violate any early release provisions. As a result, there may not be much profit, and possibly even a loss.
There is also the fact of the higher minimum investment amount which is required here, and because of this investors may lack sufficient equity to purchase multiple properties. Only with multiple properties can you really ever make a significant profit, and so this can definitely be a risk.
Because of the TIC: cash flow risk that is present, there are certain things that investors should do to control the risk as much as possible.
Advantages
It is also important to understand the advantages of the TIC, because there are many, and in most cases the benefits far outweigh the possible TIC: cash flow risk issues.
TICs offer investors an easy way to diversify their real estate holdings, and also, because most TIC properties are investments in Class A or Class B buildings and are often located in central business districts or other important and busy areas, an investor may realize a higher quality investment through an improved tenant profile.
The cash flow is generally paid monthly which is obviously nice, and as well because the minimum equity requirements can be as low as $100,000, and this means that the investor can invest in multiple high quality, institutional grade properties.
The TIC ownership is an extremely popular choice among real estate investors around the world, and definitely one that you should consider if you are a real estate investor yourself. TIC investments enable you to replace your exact amount of equity and debt from your relinquished property for your 1031 exchange and so this can definitely be one of the most profitable investments you ever make.
So? what is cash flow planning? Cash flow planning is projecting your future cash inflows from sales, services, and loans, and comparing them to your future cash needs (suppliers, salaries/wages, loan payments, taxes, etc.). The difference between the two is your net cash flow.
Why is cash flow planning so important? Cash flow planning can help you identify problems down the road, and fix them before they occur. It can also help you make decisions such as should I attend that conference I've wanted to attend, should I buy the new computer I've been wanting, or do I need to work extra hard this month to avoid a cash deficiency next month?
The first step in planning your cash flow is knowing where you spend your money! Solo entrepreneurs need to have a good grip on both their personal and business spending, as most solo entrepreneurs rely on their business income to meet personal finance goals (i.e., pay the bills!). So, you should track both your personal and your business spending, although I recommend that you keep them separate (that's a topic all by itself).
What's the best way to track your spending? You can use pen & paper, spreadsheets or a software program. The best method for you is the method that you will actually use on a regular basis.
You should project your spending for at least the next 12 months so that you include annual and other periodic expenses. If you are experiencing a cash flow crisis, you should track & project your cash flow on a weekly basis, instead of monthly.
If you are an existing business, you can project your cash flow for the next year by reviewing your expenses for last year. If you are a new business, you will need to estimate your start up costs in addition to regular operating expenses.
Start up costs include inventory, legal expenses, advertising, licenses & permits, supplies, and many more costs that you may not have thought of. To research startup costs you should contact your local Small Business Development Center, contact a SCORE counselor, join groups of similar business owners, and read as many books or articles you can find on the subject.
To improve your cash flow, you should:
1. Complete the first 3 steps. You have to understand cash flow planning, track your cash flow, and project your future spending needs before you can improve your cash flow.
2. Create best and worst case scenarios and create appropriate responses to both scenarios. For example, if your best case scenario is to increase sales by 50%, how will you use the profits? Will you put the profits back into the company by investing in new equipment, training, etc.? If your worst case scenario is a drop in sales by 50%, how will you continue to cover your monthly expenses? By planning for the best and worst case scenarios, you'll be ready for any situation.
3. When estimating your future income, realize that some people will pay late, and account for that fact in your projection.
4. Charge what you're worth. Many businesses, especially service professionals, under-charge when they are first starting out. This is a great way to go out of business. Make sure you are charging what you're worth, and remember you're in business to make money, not to give your expertise away for free.
5. Watch your business spending. Focus on the value the item brings to your business, and avoid lavish spending (i.e., do you really need the fastest, newest computer available?).
6. Don't hire until necessary. Consider using virtual assistants or temporary employees before hiring permanent employees.
7. Give incentives for early payment for products and services. On the flip side, chase down invoices the minute they're late. Charge interest or late fees to encourage timely payments.
8. Update your projection regularly. Your cash flow plan will change frequently as your business grows. You may want to update it weekly when you first get started, then switch to monthly once you've got a good handle on your cash.
Remember - whether you are a new or growing business, your cash flow projection can make the difference between success and failure.
Both Kathryn Landry & Kristine Mckinley are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Kathryn Landry has sinced written about articles on various topics from tax, Investments and Tax. Kathryn R. Landry is a business writer for TIC Advisors, Inc . A company that can give you the most complete information on a or. Kathryn Landry's top article generates over 8100 views. to your Favourites.
Kristine Mckinley has sinced written about articles on various topics from Retirement, Investments and Personal Finance. Kristine A. McKinley, CFP, CPA, and founder of Beacon Financial Advisors, offers financial and tax planning on an hourly, fee-only basis. To sign up for free financial planning tips, worksheets, checklists and more, visit. Kristine Mckinley's top article generates over 9900 views. to your Favourites.