Tenancy-in-common (TIC) is an increasingly popular real estate investment vehicle. TIC has long been used as a method of holding title to real property, but it has recently become a popular method of large-scale real estate financing as well. Under this co-ownership structure, you own an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and growth. Further, you will receive a separate deed and title insurance for your percentage interest in the property and have the same rights as a single owner. TICs make it possible for investors structuring Section 1031 exchanges to acquire replacement properties and thereby avoid capital gains tax.
Who is a prime candidate to consider a TIC investment? A TIC investment is ideally suited to an investor who wants to own real estate without the hassles of management. Investors who currently own real estate and want to conduct a 1031 property exchange (see report below) and would like to eliminate property management headaches would find a TIC investment ideal.
The benefits of TIC property ownership are many:
Ø Access to high-grade commercial properties
Ø Access to properties nationwide
Ø Allows for asset and location diversification
Ø Monthly or quarterly income
Ø Professional management
Ø Property appreciation
Ø Tax advantages (depreciation and interest deductions)
Ø Suitable for 1031 exchange
Ø Pre-negotiated non-recourse loan, eliminates personal responsibility
Ø Tenants and property management typically in place
There are however some potential disadvantage:
Ø Not in sole control of the property
Ø No involvement in day-to-day operations
Ø Important decisions will be made by voting
Ø Real estate is relatively illiquid – typical TIC hold times range between 3-10 years
Ø Cash flow is not guaranteed
Ø Loss of principle is possible – Like any investment
TICs properties are real estate but they are sold as private placement securities. Private placement securities are only available to accredited and suitable investors. Accredited investors are defined as those having a net worth of at least $1 million or an annual income of $200,000 ($300,000 with spouse). Additional restrictions by the TIC sponsor may apply.
As with any investment, investor due diligence for TIC property is prudent. TIC investments located in markets that are researched and chosen for there robust character are of high value to investors. To learn more about researched and robust markets complete the TIC application.