TIC
Tenancy In Common Real Estate

What is all the fuss about TIC?

Tenancy in Common (TIC) has gained rapid popularity in the commercial real estate industry since the IRS ruled in 2002 that TIC ownership met the ownership requirements to qualify for a 1031 Exchange. In a TIC, each individual owner holds an undivided fractional interest in the property. When a TIC is purchased, a deed is issued and recorded describing the fractional interest owned in the real estate. The property is not physically divided; rather it is the ownership that is divided. A TIC owner is usually entitled to possession of the whole property, but the deed will be for the fractional interest that is purchased when the TIC is formed. Other forms of group real estate ownership, such as a corporation, get confused with TIC. However, in a corporation, the ownership is a fraction of the entity (share); whereas, the ownership of a TIC is a fraction of the real estate.

No Capital Gain Tax!

The 1031 decision was enormous in making TIC popular because a 1031 Exchange has a rigid time schedule dictating when certain events have to happen to meet the 1031 requirements. Simply put, a property seller has 45 days after the sale of his property to identify new properties that may be purchased to offset the gain generated from the sale. Then one or more of the identified properties must be purchased 180 days from the sale of the original property anniversary date. In an active commercial real estate market, finding a replacement investment within the cramped time schedule can be difficult, at the least, and sometimes impossible, at the worst.

Easier finding a replacement property.

The TIC option is an opportunity for a person who has wanted to sell a commercial property to do so. Many property owners hold back on selling because they know the easy part is selling; the hard part is finding a replacement within the 45-day time frame. If a replacement is not found, the depreciation recapture and capital gain taxes can be staggering. A TIC is much easier to find because the investor is less concerned with having the property nearby since the property will be professionally managed for the TIC owner, freeing the investor of many hands-on management obligations that typically go with total ownership of a commercial property. Also, when a TIC is formed, the founders go through a rigorous due diligence to determine if they want to form the TIC in the first place. Many TIC founders will maintain a minority ownership in a TIC and know future TIC owners, before they invest in a TIC, will be just as concerned about location, tenant stability, financing terms, environmental concerns, and bottom line return; therefore, the due diligence work is detailed and documented for future TIC investors to review.

Leave the management to the professionals, watch for the mail.

TIC ownership is no longer a safe haven for the wealthy. TIC interests can be purchased as low as $150,000. A couple who have been working 24/7 running their motel and are tired, can invest the proceeds from the sale of their motel and let the professional manager hired by the TIC, manage the property. No more, “the sink is leaking” calls at 4 AM. The only thing left to worry about is what time the mail arrives: most TIC proceeds are dispersed monthly.

TIC property is available throughout the country.

Since TIC property is fully managed, the need for a replacement property to be close by the investor's normal comfort zone is no longer a priority. Of course, the old saying about “location, location, and location” as being the three most important real estate factors still apply, which has already been address during due diligence.

Good income.

Not all TIC investments are the same, like all the commercial real estate is not the same in your hometown. The better managed, better tenant quality properties are going to return more than properties lacking in good location, management and tenant quality. As with your local commercial real estate decision you most likely rely on a commercial real estate broker, so too it is recommended that you contact a professional commercial real estate broker who is knowledgeable of TIC real estate purchase and sales. Not every commercial real estate broker deals in TIC real estate, so ask. If you want our assistance, please complete the following TIC Data Investment Sheet and we will have a member broker contact you, who can guide you through the process of selecting a TIC that best meets your investment goals.

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