Tenants in Common
- Tenants in Common
Tenant in Common (TIC) ownership is a form of holding title to real property in which multiple investors each own a deeded interest in the entire property and share in their pro rata interest in the income, tax shelters, and appreciation. TIC investors receive a separate deed and title insurance for their percentage interest in the property and have the same rights as a single owner.
TICs enable the average investor to participate in the ownership of institutional quality property ranging in value from $10 million to over $50 million by combining the funds from up to 35 investors. Because these properties are often available with extensive due diligence, property management, and non-recourse financing in place they may make it easier to identify, acquire, and own than many other options for a 1031 exchange.
- Benefits of Tenants in Common Properties
- Risks of Tenant In Common Properties
Simplicity & Ease of OwnershipTIC ownership provides simplicity and ease of ownership by eliminating active property management headaches for investors. Real estate investors who are tired of the day to day burdens of property management or who own land and would like to own income producing property may benefit from a professionally managed or triple net leased TIC property. The Sponsors of TIC properties source potential acquisitions, conduct extensive due diligence, arrange financing, manage the asset, negotiate leases, distribute income, and provide quarterly and annual reports for investors. Property tours and conference calls are typically offered to investors to as well.Monthly Cash FlowOne of the primary benefits of owning TIC properties is the potential to generate income. Cash flow from TICs is paid monthly and may be partially sheltered from taxes. As with any real estate, there is no guarantee of steady income, but investing in a diversified portfolio of quality TIC assets may reduce the reliance on one or a few tenants.
Higher Quality Real EstateTIC ownership offers investors the opportunity to invest in a caliber of property that they may not be able to acquire on their own. For example: a 400 unit Class A apartment complex with superior amenities located at a preferred location in a major metro would not be an option for an investor with $500,000. However, 30 investors with $500,000 each and financing are able to acquire the building through Tenant in Common ownership.
Low Minimums and Flexible Investment AmountsMinimum investment amounts in TICs are as low as $100,000. These low minimums enable investors to participate in the ownership of larger, higher quality assets in preferred locations with credit tenants and also facilitate diversification into a portfolio which may include different property types, locations, tenants, and industries. Flexible investment amounts enable investors to precisely match the equity and debt requirments of their 1031 exchange.
DiversificationTIC ownership enables investors to diversify their 1031 exchange proceeds, thereby potentially reducing the risks associated with investing in a single asset. It may be possible for an investor to own TIC interests in multiple asset classes and locations such as: a 400 unit apartment complex, a medical office building, and a triple net leased retail property leased to a credit tenant. It is important to note, however, diversification does not guarantee against loss, and income is not guaranteed and may fluctuate.
Pre-arranged FinancingArranging for financing within the time constraints of a 1031 exchange can be difficult. Most TIC properties are offered with pre-arranged, non-recourse loans making it easier to replace required debt in a 1031 exchange. For those investors seeking properties without leverage there are typically several options available.
Real Estate TaxationLike any real estate investment, TIC ownership offers the benefit of depreciation in addition to the capital gains deferral received from a 1031 exchange.
Ready Inventory of Properties AvailableA ready inventory of TIC (& DST) properties allows individuals to easily identify properties within the 45 day identification period of a 1031 exchange. TICs may also be useful as a “backup” property in case a preferred property fails to close.
Extensive Due DiligenceThe quality of the property and its management determine in large part how reliable the investment will be in terms of preserving principal, cash flow, and long-term appreciation. Due diligence is performed on each property, surrounding market, and real estate provider (Sponsor) before a property is recommended to our clients. 1031 Investment services utilizes our own in-house due diligence in addition to that of our broker-dealer and highly regarded third party organizations to help ensure the integrity of each client’s investment.
General Real Estate RiskAs with any real estate investment TIC properties may lose value. Various economic cycles can affect the performance and value of any property. Real estate investing is speculative and involves a high degree of risk; as such, investors should be able to bear the loss of their investment.
No Guarantee of Income or PerformanceNeither 1031 Investment Services nor any of the Sponsors of TIC or DST properties guarantee income distributions or overall performance of any property.
Non-LiquidA TIC investment is an investment in real estate and considered illiquid. Although investors have the right to sell their interest at any time, there is no established secondary market. Investors should be prepared to hold their interests until disposition of the property.
Fees and ExpensesThe cost of acquiring a TIC may be more than purchasing a property entirely on your own. In some instances, costs associated with the transaction may impact returns and outweigh the tax benefits of the investment.
Leverage Enhances VolatilityWhile TIC and DST properties are offered with varying degrees of financing, there are additional risks associated with leveraged properties including increased volatility and risk of principal invested.
ControlWhile TIC owners do vote on major decisions related to the property, they do not have direct control of the day to day operations.
Conflicts of InterestConflicts of interest may exist that could adversely affect the investment.
1031 Exchange RisksThere are a number of significant tax risks and issues related to the purchase of an interest in a TIC property. Investors should consult their tax advisors and legal counsel before investing. If an investor does not comply with the detailed requirements of Section 1031 they may lose the tax benefits of a 1031 exchange.
