Tenants in Common Property Investments
Tenant in Common (TIC) is a form of holding title to real estate. It allows the owner or owners to own an undivided fractional interest in the entire property. In addition, it has become the preferred investment vehicle for real property investors who wish to defer capital gains via a 1031 exchange real estate transaction and own real estate without the management headaches.
A popular choice among 1031 exchange real estate investors seeking replacement property for their IRC Section 1031 exchange real estate is Tenant in Common Ownership (TIC), also known as fractional ownership. Under this co-ownership structure, you will own an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and growth. Further, you just receive a separate deed and title insurance for your TIC interest in the property.
Because TIC opportunities are often "packaged" with management and financing in place, tenant in common (TIC) investments offer superior efficiencies in the identification, acquisition, financing, closing, and operating stages of real estate ownership. Although, it should be noted, TIC investments are considered illiquid and there is no secondary market for the sale of tenant in common ( TIC ) interests.
Furthermore, fractional ownership provides you with the ability to diversify your 1031 Exchange real estate into more than one tenant in common (TIC) property and to participate in potentially larger, institutional quality properties while still benefiting from your portion of the tax shelter and growth. Thus, small investors in one area of the country may participate in large industrial, commercial, and residential property investments all around the country with professional management by using TICs.
TIC investments provide simplicity by eliminating active property management headaches while investors still receive benefits such as real estate tax shelters. Individuals who are tired of the day-to-day burdens of being a landlord or who own land and would like an income producing property will appreciate the following benefits of a TIC investment:
- Cash flow is generally paid monthly and is tax sheltered via depreciation pass through and interest deductions. You may also have appreciation of the tenant in common (TIC) investment when sold.
- Minimum equity requirements for a tenant in common ( TIC ) are as low as $100,000. This may allow you to invest in high quality, institutional grade properties. Otherwise, it may be prohibitive for you to acquire property with a billion-dollar credit-worthy tenant guaranteeing a long-term lease. The low minimums of tenant in common ( TICs ) also allow you to diversify, which can reduce your risk by allowing investments in different locations, with various property types, tenants, industries, etc.
- National real estate companies that structure these tenant in common ( TIC ) programs acquire (identify and locate, evaluate, arrange financing, etc.), manage (maintain, lease, collect rent, service mortgage), and sell the TIC properties. They have a vested interest in the performance of the property. These companies have strong track records extensive experience in all sectors, types, and locations of real estate.
- TIC investments enable you to replace the required debt on the 1031 exchange real estate when needed. Accredited investors assume non-recourse (no personal guarantee) financing existing on the property. You can invest in TICs that have no debt or in ones with up to 75% leverage.
- TIC investments provide the flexibility to avoid the taxable boot if your preferred real estate doesn't allow you to meet the full debt and equity requirements.
A ready inventory of ( tenant in common )TIC properties allows individuals to easily identify properties within the 45-day identification period, acquire within the 180 days, or have a "back-up" property in case their preferred real estate falls through.
