The Importance of Due Diligence

As with any real estate investment, there is risk in §1031 exchanges and Fractional Ownership Real Estate (FORE) investments, such as a tenant-in-common (TIC) or Delaware Statutory Trust (DST). Investors should carefully review offering materials related to any FORE investment as those materials will contain important risk disclosures and specific information about the property. Interests in real estate may be speculative and may involve a high degree of risk; investors should be able to bear the loss of part or all of their investment. Some FORE investments, in particular TICs, are subject to recourse liability (i.e., the investor may be responsible for providing any cash needed in the future in connection to the property).

There are typically restrictions on transferring FORE interests; these are not liquid investments.

There are a number of significant tax risks and tax issues involved with the purchase of a FORE investment; investors should consult their own tax advisors and legal counsel. The direct or indirect purchase of real property involves significant risks, including market risk and property specific risk. The purchase of real property with other investors (e.g., as a TIC or DST), presents risk related to the relationship with those other investors.

FORE investments are often leveraged; leverage may increase volatility and may increase the risk of investment loss. The manager has board authority and discretion over the property and the terms of financing. The various fees paid to the manager and its affiliates in a FORE investment are significant and may offset profits related to the ownership and operations of the real estate.

Finally, there is no guarantee that cash distributions will continue, that a particular property’s business plan will be successfully executed, that the property’s value will be enhanced, or that the property will be sold within the planned time period, In other words, past performance is no guarantee of future results.