Tenancy in Common (TIC) is a co-ownership structure in which investors pool their funds to own an entire property. Each investor owns an undivided fractional interest and participates in a proportionate share of the net income, tax shelters and growth. Each owner receives a separate property deed and title insurance for their interest in the property, and each has all the same rights and privileges as a single owner. Like a DST, the purchase of a TIC interest is treated as a direct interest in real estate, qualifying as “like kind” real estate for 1031 Exchange. However, because each TIC investor holds title, there may be the need to sign “carve-outs” related to investor fraud and environmental issues.
Traditionally, TIC offerings came with pre-arranged, non-recourse financing similar to DSTs. However, stricter underwriting standards have resulted in the recent trend to limit TIC offerings to all-cash transactions with no mortgage debt.
Finally, while the investor has deeded title to the property – which would normally open up their personal assets to liability for the property owned in common – TIC investors typically set up LLCs, making them bankruptcy-remote.
TIC Risks
In addition to all the risks of investment real estate, TICs carry the risk of disagreement or conflict with the other tenants over the management, financing or sale of the property. Unanimity among the tenants is required for all major decisions. Although there are usually provisions to purchase the interest of a dissenting tenant, this can be difficult or time consuming. If the property held in common is leveraged, there is the risk of being unable to re-finance the program at the end of a loan’s term.