Tenant-in-Common (TIC) is a form of holding title to real property. It allows the owner/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 an IRC Section (§) 1031 Exchange and own real property without the management headaches.
A popular choice among real estate investors seeking replacement property for their §1031 tax deferred exchange 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 will receive a separate deed and title insurance for your percentage interest in the property and have the same rights as a single owner. Because TIC opportunities are often "packaged" with management and financing in place, TICs offer superior efficiencies in the identification, acquisition, financing, closing, and operating stages of real estate ownership.
Furthermore, fractional ownership provides you with the ability to diversify your 1031 Tax Free Exchange into more than one property and to participate in potentially larger, institutional quality properties. 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.
TIC investments provide simplicity by eliminating active property management headaches. 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 benefits of a TIC investment. The TIC program gives you a "coupon clipper" or "mailbox management" investment that can save you time and money.
- Cash flow is generally paid monthly and is tax-sheltered via depreciation pass through and interest deductions. You may also share in the appreciation of the property when sold.
- Minimum equity requirements as low as $100,000 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. These low minimums 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 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 and extensive experience in all sectors, types, and locations of real estate.
- TICs enable you to replace the required debt on the 1031 when needed. In most cases accredited investors assume non-recourse (no personal guarantee) financing existing on the property. You can invest in properties that have no debt or in ones with up to 75% leverage.
- TICs 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 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.
Source: Tenant-in-Common Association (TICA) 2005