Demystifying TICs: The SEC

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People often ask me about The Securities Exchange Commission and Securities in connection with creating Tenancy In Common (TIC) Agreements for real estate investments.  I give them an overview, and tell them to see an attorney…a good attorney.  In Portland Oregon, that means calling Reeves Kahn & Hennessy @ 503.77.5473.  They’ll help you with TIC formation, Operating Agreements, and advice…at a fraction of the cost of other good lawyers.

The old joke is that The SEC is like the IRS…without a sense of humor. 

But the reasons for creating the SEC and their mission offers no comedic relief:

“In the 1920s, some companies sold stocks and bonds on the basis of glittering promises of fantastic profits – without disclosing any meaningful information to investors.  In some cases these statements were exagerations or puffery; in other casese the term fraud applies. These conditions contributed to the disastrous Stock Market Crash of 1929. In response, the U.S. Congress enacted the federal securities laws and created the Securities and Exchange Commission (SEC) to administer them.”

There are two primary sets of federal laws that come into play when a company wants to offer and sell its securities to the public. They are:

  • The Securities Act of 1933 (Securities Act), and
  • The Securities Exchange Act of 1934 (Exchange Act).

There are investments that, having met very specific criteria, are exempt from the above.  Use  a recommended attorney like R,K&H to structure your first TIC…and then everytime after that.  Your attorney will give you detailed information about how the deal will be may legally be offered, restrictions on marketing, and advice to never even think the word “syndication.”

“With all the concern about SEC Regs, why do people even mess with TICs?”

The answer is simple.  Half a dozen investors can combine their equity to acquire much larger assets than they could purchase individually. There are economies of scale that occur multiple times through the size range of multifamily properties. I know of one investor that started with an office whose desk was a door removed from the hinges…and twenty years later is doing $100 million deals.  His effective use of TIC’s is a fundamental part of his success.

I’ve heard of several TIC Companies having troubles!

What you’ve read is true.  But remember that a TIC is merely a way in which a group can hold an asset.   Investments make money on their own merits and are not dependent whether it is held individually, as a partnership, or as a corporation.  I suggest focusing on acquistion price, costs of operation, cash flow and appreciation at disposition.

In forming TICs, many investment coordinators insist on working with Accredited Investors exclusively.  I’ll explain further in Chapter 3.  I’ll also cover Operating Agreements in an upcomming post.

Are you ready for Client Centric Service?  Contact Rick M. Bean now to begin investing…or to start learning about investing.

Rick M. Bean

Rick@rosecitycre.com

Comments

One Response to “Demystifying TICs: The SEC”
  1. M. S. Surdam says:

    How about a post concerning current availability of commercial funding for multifamily purchases?

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