Here’s how a “TIC” Helps You Buy into Pricier Real Estate

As a 37-year real estate broker in South Orange County, I occasionally get
questions about buying properties using Tenants-in-Common (TIC). What in the
world is a TIC, you ask?

Well, a TIC stands for “Tenants-in-Common” which is a way that two or more individuals can own the same property.

In common terms, fractional, or co-ownership, interests in real estate lets you acquire, along with other investors, a bigger, likely more stable, secure and profitable real property asset than what you could have acquired and afforded on your own.

A TIC is a way that big and even smaller investors can leverage themselves into a higher end property that that they couldn’t have touched before, while limiting their risk.

In addition, by acquiring tenant-in-common investment property ownership interests in a number of different investment properties, you can achieve greater
diversification and improved overall quality in your real estate investment
portfolio.

Because of the depressed realty market, there are not so many TIC properties as before. But they are still out there and each must meet certain investor-desired parameters.

Here are the basic things for you to
remember about Tenants-in-Common

1.  Why Participate in a Tenants-in-Common (TIC) Property Investment?

By investing in a Tenants-in-Common venture, the owner enjoys the advantages of owning a larger property, including its income and depreciation, without having
to come up with the money to be the sole owner of the property.

When you combine your Tenants-in-Common property investment with a 1031
tax-deferred exchange, you gain more flexibility than you do with a typical
1031 exchange. This is due to many favorable factors, the best of which
include:

The ease of mind you gain from investing in institutional, investment-quality real
estate, and .....

·       Flexibility in choosing the size of your investment,

·       Benefits gained in timing.

·       The chance for wider diversification in your portfolio

·       Professional Management

2.  How Do TICS Work?

According to Realty Giant Inman News:

“When you buy property with others, one way to do it is through tenancy in common. Tenants in common can have equal, or unequal, interests in the property. Each co-owner can transfer his or her ownership interest to another person without the co-consent of the owner(s). At the time of death, the co-owner's interest passes to his or her heirs, or devisees, not to the other co-owner(s).”

3.  Tics Are Safe…They Just Look Different. 

As you would expect, TICS vary greatly from one property to the next.  Variables include how much equity is being placed, the minimum equity amount required, and how many co-owners will be involved.

Also, annual returns vary per property, and these include appreciation, equity,
principal reduction of non-recourse financing, cash flow, etc.  Each tenant in common investor receives a cash flow check every month.

Loans are usually non-recourse and mesh with the particular business plan used when buying the subject investment property.  Usual minimum investments in TICs vary from $100,000 to $750,000.  Many TIC programs, though, have minimum investments reaching into the many millions of dollars.

The structure of TIC property investments was defined in 2002 when the IRS
published its guidelines (Revenue Procedure 2002-22) covering TICS.) Note that these guidelines state that in Tenants In Common, often called co-ownership of real estate (CORE), there cannot be more than 35 investors. Usually there are from 12 to 20 TIC/CORE investors in a property.

Tenants in Common interests are subject to gift taxes, property tax and inheritance and estate taxes just as a sole property ownership would be.

The TIC investment can be inherited, bequeathed in a will, bought or sold just as a
sole ownership property. Sometimes residential homes are owned by a TIC.

TICS appeal to a narrow, but generally sophisticated investor market.  If you have been considering investing to gain greater ease of mind, you might look at TICS, but only before exploring it with expert council. 

People often invest in 1031-benefit property that lacks the headaches often inherent when you manage less than institutional, investment-quality real estate. Or worse yet, when you manage all the details of your sole-owner property by
YOURSELF.

Most people need guidance and should use caution and an expert’s help before
investing in a TIC program.

If you’re seeking a TIC solution, or just have a question, contact me. We can both
review a list of TIC-qualified properties, available for a TIC investor right here in South Orange County.