Tenant-In-Common (TIC) Investments
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A popular choice among real estate investors seeking replacement property for their IRC Section 1031 tax deferred exchange is Tenant-in-Common (TIC) ownership , 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, TIC investments may offer 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 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 already in place. |
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Advantages of a TIC Investment
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 following benefits of a TIC investment:
- Cash flow is generally paid monthly and portions can be 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 multiple high quality, institutional grade properties.
- 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 usually have strong track records and extensive experience in various sectors, types, and locations of real estate.
- TIC investments enable you to replace your exact amount of equity and debt (when applicable) from your relinquished property for your 1031 exchange. In a TIC transaction, accredited investors assume non-recourse (no personal guarantee) financing on the TIC property. Debt on TIC offerings can range from zero debt up to 75% leveraged.
- TIC investments allow you to 1031 exchange your exact equity amount, investors can avoid paying taxes on boot when you cannot replace your TOTAL equity amount in a traditional replacement property.
Welton Street’s ready inventory of TIC properties allows investors to easily identify TIC properties within the 45-day identification period, close within 180 days and select TIC investments that meet their equity and debt replacement requirements.
Risks of a TIC Investment
Exposure to real estate markets:
- TIC investments are direct investments in real estate and are subject to all of the risks of owning, operating and disposing of real estate.
- Results from investing in real estate may be higher than purchasing an entire property outright due to the additional expenses of making the property available to multiple co-owners and marketing it in the form of a private security offering.
- Owning fractional interests in real estate may add to the illiquidity of the investment. As of today, there is no established secondary market for the resale of TIC investments.
Higher costs than private, sole ownership real estate purchases:
- The cost to acquire TIC interests may be higher than purchasing an entire property outright doe to the additional expenses of making the property available to multiple co-owners and marketing it in the form of a private security offering.
- TIC Investments may not be suitable for all 1031 Exchange Investors and are only available to accredited investors.
