About Tenant-in-Common
Tenant-in-Common is a form of holding title to real property. It allows the owner(s) to own an undivided fractional interest in the entire property. In addition, it has become the preferred investment vehicle for real property investors who wish to defer capital gains via a 1031 exchange and own real property without the management headaches.
A popular choice among real estate investors seeking replacement property for their IRC Section 1031 tax deferred exchange is Tenant-in-Common Ownership (TIC), also known as fractional ownership. Under the Tenant-in-Common (TIC) structure, you will own an undivided fractional interest in an entire property and receive a proportional share of the cash distributions and sales proceeds from the property. Further, you will obtain a separate deed and title insurance for your interest in the property. Because Tenant-in-Common opportunities are often "packaged" with management and financing in place, TICs offer superior 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 Tax Free Exchange into more than one property and to participate in 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.
Tenant-in-Common investments eliminate the headaches of active property management. 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 benefits of a Tenant-in-Common investment. The TIC program gives you a "coupon clipper" or "mailbox management" investment that can save you time and money.
Why invest in a Tenant-in-Common 1031 Exchange?
The key to Tenant-in-Common (TIC) investments is fractional ownership. A group of investors is organized, or “sponsored,” under a Tenant-in-Common structure and the group is then able to acquire a large commercial property.
Tenant-in-Common (TIC) investments are an attractive alternative for knowledgeable investors who wish to get away from the daily grind of property management while retaining their exposure to real estate. Tenant-in-Common investments offer the same tax and wealth preservation benefits as other types of real estate, and frequently provide comparable or superior current returns and appreciation potential.
Tenant-in-Common (TIC) investors are directly on title to the property and are allowed to sell their interests to other Tenant-in-Common investors and to buyers outside of their TIC agreement. Tenant-in-Common agreements include other aspects of the IRS guidelines and allow all participants to benefit from a structured operational agreement.
Breakdown of Tenant-in-Common advantages:
- Low Minimum Investment
An estimated 40% of all 1031 exchanges involve capital amounts of $250,000 or less. - Diversification & Safety
In a typical 1031 exchange, the taxpayer will identify three potential replacement properties and subsequently purchase only one. Tenant-in-Common ownership makes it economically feasible to identify and acquire ownership interest in many properties instead of one, thereby decreasing risk through diversification. - Flexibility
If the taxpayer identifies a TIC property as one of the replacement property choices, his entire proceeds can be applied to the TIC property if the other choices fall through. In addition, if there is money left over after another closing, these funds can be invested in the Tenant-in-Common property. - Decreased Tax Risk
A A Tenant-in-Common property can frequently be reserved for a period of time after the identification period, thereby reducing the likelihood that capital gains taxes will have to be paid as a result of a collapsed deal. - Existing Financing
Typically, Tenant-in-Common properties already have financing in place that can be assumed by the TIC buyer with minimal effort. - Speed
A Tenant-in-Common closing can take place within days of identification by eliminating the negotiation process, the loan origination process and appraisal work. - Liquidity
By maintaining a secondary market of Tenant-in-Common ownership interest, new investors can select seasoned properties, and existing owners can liquidate their partial ownership interest. - Simplicity
A Tenant-in-Common investor receives a monthly check without having to bother with the day-to-day management of the investment. - Safety
Tenant-in-Common properties may have tenants with greater financial strength and stability than might be possible for the individual buyer.
Additional benefits of a Tenant-in-Common investment:
- Distributions of cash flow are generally paid monthly and frequently benefit from depreciation and interest deductions, which reduce the tax burden. 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 high quality, institutional grade properties. These low minimums also allow you to diversify, which can reduce your risk by allowing investments in different locations, with various property types, tenants, industries, etc.
- National real estate companies that structure these Tenant-in-Common programs acquire (identify and locate, evaluate, arrange financing, etc.), manage (maintain, lease, collect rent, service mortgage), and sell the Tenant-in-Common properties. They typically have a vested interest in the performance of the property. These companies have strong track records extensive experience in all sectors, types, and locations of real estate.
- Tenant-in-Common enables you to replace the required debt on the 1031 when needed. Tenant-in-Common investors assume the limited recourse debt financing on the property. You can invest in properties that have no debt or in ones with up to 75% leverage.
- Tenant-in-Common provides the flexibility to avoid the taxable boot if your preferred real estate doesn't allow you to meet the full debt and equity requirements.
- A ready inventory of TIC properties allows individuals to easily identify properties within the 45-day identification period, acquire within the 180 days, or have a "back-up" property in case their preferred real estate falls through.
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 1031 property exchange investments all around the country with professional management.
If you would like to learn more about Tenant-in-Common investing you can contact us or attend an educational seminar hosted by Rich Giglio. These 1031 seminars are held throughout the country and explain many options of real estate purchases and investments.
Rich Giglio sits on the marketing oversight committee for the Tenant-in-Common Association or TICA and also sits on the Advisory Board for a newly formed commercial real estate broker, CORE Realty Holdings, LLC.
Rich Giglio is a Registered Representative of and offers securities through K-One Investment Company, Inc. member NASD/SiPC. K-One Investment Company, Inc. is not affiliated with either E. Richard Giglio Real Estate or RE/MAX Coastal Properties.
For more information, please contact us.
Nothing in this website should be deemed to constitute tax, legal or accounting advice. Investors are urged to consult their own tax advisors.