TIC BASICS

TIC stands for Tenancy in Common, and is a special way to own real property such as homes, commercial buildings or land. To create a TIC, multiple investors put their money together to purchase a single property. Once the purchase is complete, each investor owns a fractional share of the property which correlates to the percentage of the total purchase price the investor originally contributed.

Each investor receives his or her own property deed and title insurance and enjoys all the rights, responsibilities and privileges that he or she would have if they were a single owner of the real estate. The investor is entitled to a proportionate share of the net income, tax benefits and value generated by the property, and is liable for a proportionate share of taxes or other liabilities.

Although not required, each investor usually creates a Limited Liability Corporation (LLC) which then hold the actual TIC title. This is to shield the investor’s personal assets from liability arising from the TIC property.

TIC property ownership also confers a direct interest in real estate to the investor, and therefore qualifies as “like kind” real estate for 1031 exchange purposes.

TIC Benefits

Besides qualifying for 1031 exchanges, TIC ownership allows each investor to have control over day-to-day operation of the property. A TIC owner also has input into future sale of the TIC property. Contrast this with DST ownership, where a trustee has the right to control all matters related to the property. When an investor is a majority owner of a TIC property, he or she also has majority control of the TIC property.

TIC Risks

Like any real estate investment, TIC ownership is subject to value fluctuations based on market factors. However, unlike traditional real property owned solely by an individual, TIC ownership creates the possibility of disagreements or conflicts arising among the TIC investors. Most TICs require unanimity among all owners for any major decisions, and this can prove time consuming or even impossible in some cases.

Often, TICs will allow for the purchase of the dissenting investor’s interest by the other investors. However, again, this can be time consuming and stressful for all parties.

To compare a DST with a TIC, click here.