3 An Easy Capital Gain
By Michael V. Copeland

(Business 2.0) – The Strategy: Do a Tax-Free Equity Swap Minimum Investment: $250,000

Let's say you invested in a promising new fourplex a few years back, and whether through dumb luck or your own savvy, the thing has doubled in value. Congratulations. But being a landlord, you've discovered, isn't nearly as rewarding, and real estate values in the area are starting to skid. What if you could sell your building and reinvest the windfall in something more trouble-free--without forking over thousands of dollars in capital gains taxes? Thanks to a new wrinkle in the IRS code, a tenants-in-common investment swap--a TIC, as it's known--may be just the thing for that equity burning a hole in your pocket.

TICs take advantage of a recent change in tax law that allows the proceeds from the sale of an investment property you own to be reinvested in a share of another property, without incurring capital gains. That's helping small investors diversify their holdings while graduating into a class of real estate previously beyond reach--shopping malls, office towers, and the like. Since the IRS green-lighted these types of fractional exchanges in 2002, investment in TICs has leaped from $357 million to a projected $4.3 billion this year.

So where do you shop for a swap? New York-based Gemini Real Estate Advisors, founded by Will Obeid in 2003 as a TIC investment firm, bought four shopping malls in the Southeast for $50 million in its first year and parceled them out to 56 TIC investors within 11 months. In a recent deal, the firm sold shares of a $7.9 million shopping mall anchored by a Food Lion supermarket in Edenton, N.C., for a minimum investment of $275,000. For buyers of the shares, the annual yield--cash flow divided by equity invested--has so far been better than 8 percent. -- M.V.C.