FREQUENTLY ASKED QUESTIONS ABOUT CO-OWNERSHIP PURCHASES

What is a co-ownership purchase?

The term "co-ownership purchase" refers to real estate owned by a group of individual buyers, each with a Co-Ownership Interest and a fee simple title with a title policy. Instead of one person buying the property, a group of buyers goes in on it together, and each one holds title to his/her share.

What are the benefits of a co-ownership?

Primarily, you can own a piece of a better quality of property than you could purchase at the same level of investment if you are the only purchaser. Let us say you have $500,000 to invest. At that level, buying a property as sole owner, you are restricted to smaller properties, or less-appealing ones, or ones in less prime markets. But by going in as one of a group of buyers pooling their money, you can own an interest in a better quality of investment for the same level of financial participation. Co-Ownership gives you, as an individual buyer, the opportunity to own an interest in a stable, institutional-quality real estate asset. Something that only the really major players could finance as a sole purchaser. As a Co-Owner you share the tax and wealth preservation benefits of sole-owned real estate, the same or better cash flow, and long-term appreciation potential. And, because you and your co-owners will have a management firm looking out for your day-to-day interests in running the property, you don't have the management issues inherent in sole ownership.

What is a Co-Ownership Interest seller?

A company, like EPI, that acquires commercial real estate as a principal and offers it for co-ownership to 1031 Exchange buyers, is considered a co-ownership interest seller." That describes our role: We sell to individual investors Co-Ownership Interest in properties that they co-own with others.

Who qualifies to participate in a Co-Ownership Interest property?

Qualifications vary depending on the Co-Ownership Interest seller. EPI typically works with high-net-worth ($1,500,000+) individuals experienced in owning income property and wishing to complete a 1031 Exchange. But we also welcome buyers not operating under an exchange, such as those investing in property for the first time, or those who already own property but wish to increase their holdings.

What is the minimum investment?

It varies, but typically it ranges from $50,000 to $600,000.

How many co-owners are involved in each property?

There can be as few as two and as many as 35, but typically the number is somewhere around 20 to 30.

Does EPI ever control my 1031 Exchange funds?

No. Funds move from the co-owner's 1031 Accommodator directly to the purchase escrow account. EPI never touches a co-owner's 1031 Exchange funds. That is not our role, nor our interest.

Do I sign a loan? If so, is there recourse?

You sign a loan for your pro rata share. With the exception of standard carve-outs, the loans are typically non-recourse.

How are decisions made?

By a vote of the co-owners, facilitated by the Asset Manager.

Who manages the property?

Co-owners maintain control, voting on and hiring nationally recognized, third-party property and asset management firms. EPI does not handle property management. We focus exclusively on finding the best and most potentially profitable properties and on facilitating their purchase.

Who is the leasing agent, and how is this agent appointed?

The property management firm (or an assignee) generally handles the leasing in accordance with the budget parameters provided by the asset management firm and approved by the co-owners. Again, you, as one of the owners, have a say in who the leasing agent is.

How are co-owners paid?

Each co-owner receives a pro-rata share of the monthly income, tax benefits, and appreciation. Co-owners are paid directly by the property management company, subject to property performance.

What if there is a cash call?

Though theoretically this could happen, EPI sets aside sufficient reserves for each property that such an occurrence is unlikely.

What is the exit scenario?

Co-owners are allowed to sell their interest to other buyers. A co-owner who decides to sell must first notify the asset manager, who will offer the interest to the other co-owners. Other co-owners have first right of offer, after which the co-owner who desires to sell is free to sell to another party, subject to the lender's approval. You are not tied in to remaining invested in the property as long as the other owners are, if you want or need to utilize your investment elsewhere.

What if one of the co-owners goes bankrupt, dies, or divorces?

The property should not be affected. Each co-owner holds title within a newly formed, single-member, bankruptcy-remote LLC. This protects the lender and each of the co-owners.

Can I exchange my co-ownership interest into a new property?

Yes, if you are looking for a 1031 Exchange, providing all the regulations governing such exchanges are followed.

1031 EXCHANGES

What is a 1031 Exchange?

An IRS-approved real estate investment technique that allows owners to defer capital gains taxes by selling a property and buying a similar (see below for specifications) property in its stead. Instead of simply getting out of a property you no longer wish to be invested in, and paying capital gains, you can invest the money you garnered from the sale into another property and avoid paying capital gains under the like-kind rule of the laws governing 1031 Exchanges. Here's what you have to do: Identify a like-kind replacement property (see below) within 45 days, and close on that new property within 180 days.

In an ordinary sale, the property owner is taxed on any gain realized from the sale of the property. In an Exchange, some or all of the tax on the transaction is deferred until some time in the future, usually until the newly acquired property is sold (although it, too, can be exchanged, with exchanges effected again and again, thereby deferring taxes indefinitely).

What is Revenue Procedure 2002-22?

Guidance from the IRS that outlines how to structure a fractional-deed co-ownership property offering to individual 1031 Exchangers.

What is "like-kind" property?

Property of the same type as another property. All real property is "like-kind" to each other and can be exchanged for other real property. That is, you do not have to exchange a retail center for a retail center or an apartment building for another apartment building. They are all real property, so they are all "like-kind" to each other, and under the rules governing 1031 Exchanges, you can exchange a rental home for a retail center or vacant land for an apartment building, to give two examples.

Is foreign property considered like-kind?

No. Only property located within the 50 United States and the U.S. Virgin

Islands is considered like-kind and eligible for a 1031 Exchange.

What is a "downleg"?

"Downleg" is the term for the property to be sold as part of the 1031 Exchange.

What is an "upleg"?

"Upleg" is the term for the property to be acquired in the 1031 Exchange.

Can I 1031 Exchange my co-ownership interest in a property?

Yes. A co-ownership interest is considered like-kind and should qualify for Section 1031 consideration. It does not matter what percentage of the property you own, only the actual dollar value of your interest as compared with the actual dollar value of the property or properties you are buying (or acquiring co-ownership interest in) in exchange. What does matter, though, is that you must have held your interest in the property either for productive use in trade or business, or for investment. (I.e., it cannot be personal property.)

How long is the identification period?

Under the rules of 1031 Exchanges, an owner has 45 days from the date of sale of one property to identify the like-kind replacement property he or she intends to purchase. She or he then has 180 days to close on that property. The identification period terminates at midnight on the 45th day following the initial transfer date. Note that, in this case, "days" means "calendar days," not "business days." In other words, Sundays and holidays count too.

What is an Exchange Accommodator?

The Exchange Accommodator, or "Qualified Intermediary," is the person who holds the proceeds of the "downleg," or property sale, and monitors the critical dates necessary to meet 1031 Exchange requirements (45 days for identifying the property and 180 days for closing on it).

Can one property be exchanged for several?

Yes. One or more relinquished properties may be exchanged for one or more replacement properties, subject to specific rules and limitations. You can thus sell a retail center, or co-ownership interest in a retail center, and 1031 Exchange it for several apartment buildings, or co-ownership interest in same, to give an example.

When will gain or loss be recognized?

In a successfully completed 1031 Exchange, the gain isn't recognized until the owner otherwise disposes of the replacement property in a fully taxable transaction. There is no time limit, upper or lower, as to how long you may hold, or must hold, the replacement property. And if you wish, when you are ready to dispose of your ownership (or fractional ownership) of this second property, you can do so via another 1031 Exchange and once again stave off being subject to capital gains taxes. In fact, if the owner continues to execute 1031 Exchanges, a gain might never be recognized.

Can a corporation or partnership exchange?

Yes. If you own title to a property in the name of a corporation or partnership, you are just as eligible to take advantage of a 1031 Exchange as if you owned the property in your own name as an individual. Of course, all the other rules still apply too. You need, for example, to be exchanging real property for real property. The IRS specifically excludes stocks and partnership interest from being considered like-kind to real estate, so you cannot sell real estate and buy stock within the framework of a 1031 Exchange.