Tenant In Common

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Tenant in Common (TIC) is where the investor becomes a fractional owner in a residential or commercial property. Each Tenant In Common investor possess an undivided - or 'common' interest in the property. In addition, each Tenant in Common investor has a separate Deed and Title Insurance, and has the ability to transfer their deeded interest in the property to someone else without requiring the participation of the other investors.

In March 2002, the IRS issued guidelines (Revenue Procedure 2002-22) governing the structure of these novel property investments. Since then, Tenants in Common have become increasingly popular to investors interested in buying interests in large residential or commercial properties traditionally reserved for large institutional investors. For many investors, Tenants in Common can lead to passive, long term income while eliminating the hassles of active property management.

Tenant in Common qualifies as replacement property under Section 1031 and may provide the investor with superior efficiencies in the identification, acquisition, financing, closing and management stages of real estate ownership.

Some of the possible benefits offered by a Tenant in Common investment include:

1. Low Minimum Investment - A triple net lease property with a quality tenant would cost millions of dollars, something unattainable for many 1031 investors. The Tenant in Common arrangement allows small investors to participate in large industrial, commercial, and residential investments - often with as little as $50K to $250K



2. Easy Financing - Most Tenant in Common properties have non-recourse financing in place that is assumed by the Tenant in Common investor with minimal effort.
("Non-recourse" means that, in the event of a foreclosure, the lender can only make a claim against the investor's property interest - the collateral - but NOT the investor's personal or other property assets.)


3. Fast Closing - Since loan origination and purchase negotiation are eliminated, a Tenant in Common closing can often take place in days instead of months.



4. Simple - A truly passive investment. Tenants in Common are well-suited for investors who want the benefits of real estate ownership, but don't want the headaches associated with active property management. Tenant in Common properties are usually NNN leased properties and managed by large professional property management companies.



5. Safe - Tenant in Common properties often have tenants with superior financial strength and under long-term lease contracts which provide greater stability for the investor.



6. Tax Sheltering - An increased tax basis may result in additional depreciation and interest deductions that can shelter income from taxes (consult with your tax advisor).



7. Diversification - 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 interests in several properties in different geographic areas, of differing property types, and from different sponsors, instead of only one property. This can decrease investment risk through diversification, and identification risk through ease of identifying and closing.



8. Flexibility - By identifying a Tenant in Common property as one of the replacement property choices, the taxpayer's entire exchange proceeds can be applied to the Tenant in Common property if the other choices fall through. Alternatively, if there is unused equity after another closing, the taxpayer can invest the "spill-over" money in the Tenant in Common property.