Investor Resource
Tenants in Common (TIC) Investments
A way to own institutional-quality real estate with a fractional investment — and a natural companion to the 1031 exchange strategy for investors looking to defer capital gains while stepping out of active property management.
The concept
Fractional ownership of investment-grade real estate
A TIC investment allows two or more investors to each hold an undivided fractional interest in a property — typically a larger commercial asset such as an office building, apartment complex, or retail center — that they could not individually afford to acquire.
Each co-owner holds a direct deed interest, receives a pro-rata share of income, tax benefits, and appreciation, and can sell or bequeath their interest independently. Because each investor holds a direct real property interest rather than a partnership or LLC membership interest, TIC investments qualify as like-kind property under Section 1031 of the Internal Revenue Code.
This makes TIC investments a practical solution for 1031 exchange investors who need to match an exact equity amount, diversify across multiple properties, or transition out of active property management while maintaining real estate exposure.
TIC investments vs. Delaware Statutory Trusts (DSTs)
Investors comparing TIC structures should also be aware of Delaware Statutory Trusts (DSTs), which have grown significantly in popularity as a 1031 exchange vehicle. Like TICs, DST interests qualify as like-kind real property under Section 1031. DSTs differ in that they offer limited liability protection to investors, can accommodate more investors than the 35-investor TIC limit, and are typically easier to finance. The trade-off is less direct ownership control — investors in a DST hold a beneficial interest in a trust rather than a direct deed interest in the property.
Which structure is right for you?
The choice between a TIC and a DST depends on your specific situation — the size of your exchange, your desired level of control, liability considerations, and the properties available at the time of your exchange. Neither structure eliminates the need for careful due diligence on the sponsor, the property, and the management team. Both involve real estate ownership risks including vacancy, market value fluctuation, and the possibility that projected income is not achieved. Consult with a qualified intermediary, tax advisor, and real estate attorney before committing to either structure.
Important — liquidity and exit considerations
TIC investments are illiquid. There is no established secondary market for TIC interests, and selling your share may require unanimous consent from co-owners or can only be done at a significant discount to net asset value. Investors should approach TIC investments with a long-term horizon and a clear understanding that accessing capital before the property is sold may be difficult or impossible. The tax deferral benefits are real — but so is the illiquidity. Investors should only commit capital they can afford to have tied up for an extended and potentially uncertain period.
Full resource — additional detail below
TENANTS IN COMMON INVESTMENTS
TIC Investments
The simple, no-hassle way to invest in real estate.
Minimum Investment Varies, Typically $100,000+ though we are aware of some crowdfunding-type services that start around $5,000.
What is a TIC Investment?
A TIC Investment is a ‘Tenants In Common Investment’. Tenants in Common is defined as ‘an undivided interest in property held by two or more persons that passes to the heirs if one of the parties dies.’
Simply put, it’s a simple and effective way to invest in real estate without having to be solely responsible for the property. Two or more individuals, companies, or groups pool their capital for the sole purpose of buying a piece of real estate. Because each entity owns an indivisible specific percentage of the investment, they share in the profits created by the investment based on their specified percentage. In addition to holding this indivisible interest, each entity can sell their share or even will their share to anyone they like.
Benefits of Tenants In Common Investing:
- Each Co-Owner has the Same Rights as an Individual Owner
- Fee Simple Deed at Closing
- Title Insurance Coverage
- Pro-Rata Share of All Net Monthly Income, Tax Benefits, and Appreciation
- Deferred Capital Gains Taxes
- Purchases can be Made to Fit Exact-Dollar-Amount 1031 Exchange Requirements
- Third-Party Property and Asset Management with Reporting Responsibilities to Each Co-Owner
- Monthly Distribution Checks (typically) and an Annual Property Operating Statement
- Economically Feasible to Acquire a Co-Ownership Interest in Multiple Properties, Decreasing Risk Through Diversification.
Why TIC Investments?
Fractional-Deed co-ownership is ideal for knowledgeable real estate buyers tired of personally managing property day-to-day, but still seeking the benefits of real estate ownership.
Sole-owned real estate and co-ownership properties offer the same tax benefits, wealth preservation, cash flow, and long-term appreciation potential. Co-ownership properties, however, eliminate the headaches of day-to-day management: all management duties are overseen by independent, third-party national firms.
A group of prospective purchasers is identified and organized under a co-ownership structure, and as co-owners are able to purchase a more substantial property than they would as individuals. Each co-owner receives a fractional fee title ownership deed and title report at closing.
The co-owners exit the co-ownership agreement when they unanimously elect to sell the property. Co-owners may also sell their individual interest at any time, either to another co-owner or to a buyer outside of their co-ownership agreement. At this point, the co-owner may either pay taxes on the profit or execute a 1031 Exchange and defer capital gains tax.
Co-ownership agreements include other aspects of the IRS guidelines and enable all participants to benefit from a structured operational agreement.
For Example:
- Class A Office Building with an asking price of $10,000,000 that generates $1,000,000 per year in net operating income.
- Each investor purchases a ‘share’ of the building. Let’s say we want to have a total of 100 shares and each share will then be worth $100,000.
- This means that each investor will have to buy into the investment with at least $100,000 each.
- For each $100,000 invested, the investor receives a 1% Joint Tenant Interest in the property.
- If the property generates $1,000,000 per year in net operating income, then each investor would receive a return of 1% of that amount or $10,000 per year.
- Of course, that $10,000 translates into a 10% return on their $100,000 investment.
In this particular example, each investor owns an indivisible 1% interest in a Class A Office Building. Obviously, it is unlikely that any of these $100,000 investors could have purchased any Class A property with only their own $100,000. Each investor enjoys the security of owning a solid, income-producing property with minimal capital outlay and no management head-aches. Each investor would be hard pressed to find a piece of investment real estate that they could purchase on their own with this type of security, return, or lack of managerial involvement.
Class A Property Benefits:
- Wide variety of Class-A replacement properties.
- Maximum flexibility in transaction size and property type diversification.
- High-quality properties with more reliable monthly cash flow.
- 1031 Exchange Buyers preserve 100% of their equity by deferring taxes.
- Increased depreciation potential.
- Third-party due diligence reports.
- The opportunity to consolidate several smaller properties into one larger property.
- The opportunity to acquire an interest in a substantially larger property and to use 60%-70% leverage to enhance future overall returns.
- The opportunity to buy an interest in a larger, better-located, higher-quality, or anchored property than a smaller purchase could provide on its own.