For a real estate investor nearing retirement, the thought of continuing to manage property can seem burdensome. A Tenant-In-Common (TIC) investment could be just the ticket to feeling less strained. Likewise, if you want to invest in real estate at any stage in life and not be encumbered with any of the day-to-day issues of being a landlord, a TIC investment could be worth checking into.
What is a TIC?
A TIC is an ownership arrangement in which multiple investors co-own an undivided property and each investor has a percentage ownership. The advantage is that owners can pool their equity to afford a more expensive property. As a type of ownership on a small scale, TIC can be used by couples, family members, or unrelated friends to own a home, and proceeds from the sale of the home are divided between them based on ownership percentage.
When applied as an investment on a large scale, TIC has a maximum number of 35 partners. In most cases, it would include you and 34 others.
It is a syndicated investment that allows partners to own larger scale, high quality residential or commercial properties with professional property management, accounting, and asset management.
A deed is held by the TIC owner so it still meets the requirements of an IRS Section 1031 tax deferred exchange for property held for investment. Tax, legal, and financial planning professionals should be consulted for advice to review the exact numbers relative to matching old debt and value with the new characteristics of the TIC.
Even though it is still considered real estate, you won’t find licensed real estate agents selling TICs. A TIC investment is treated like a security so real estate agents are not licensed to sell shares in a TIC property. Opportunities for TICs are usually found through licensed securities dealers or appropriately licensed financial planners.
Usually only accredited investors are allowed to invest in TICs. Again, it is necessary to work with the appropriately licensed professionals to determine exact qualifications. In general, an accredited investor must meet the qualifications of earned income in the prior two years of $200,000 for a single person or $300,000 for a married couple, OR a net worth of over $1 million either as a single person or with a spouse (not counting the value of a person’s primary residence).
TIC properties can be residential or commercial real estate including apartment complexes, shopping centers, office buildings, corporate headquarters, etc. Basically, any kind of real estate is permitted.
Advantages of a TIC
• TICS are usually put together by experienced professionals with substantial resources; however, they are not without risk.
• There is no personal management by the investor.
• Capital gains taxes might be deferred in an IRS Section 1031 Exchange if the TIC is the right fit relative to debt and value.
• It typically provides stable monthly income with a reasonable rate of return on the investment.
• The investor gets the benefit of any appreciation when the TIC property sells.
• Investors can reinvest into another TIC project after the first TIC project sells.
Disadvantages of a TIC
• The individual investor has no control over the property or associated risk factors.
• It is not a liquid investment. The investor will not control the decision as to when the TIC property will be sold or exchanged with another.
• Investors considering investing in a TIC typically need to be prepared for a long-term investment and one that it is usually more difficult to liquidate quickly. Before investing in a TIC, it is important to research management performance and track records of those offering TIC investments. Appropriate tax, legal, and financial consultations should always be obtained.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder since 1982. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit BoulderPropertyNetwork.com.