TIC Overview

Section 1031 exchanges may include acquisition of real estate interest through Tenant-In-Common (TIC) ownership. A TIC property is one in which an investor owns an undivided fractional interest in an entire property and shares in the pro-rata portion of the net income, depreciation, amortization, and property appreciation. The investor receives a separate deed and title insurance for its percentage interest in the property. Each Tenant-In-Common is entitled to share with the other tenants the possession of the whole parcel and has the associated rights to a proportionate share of rents or profits from the property, to transfer the interest, and to demand a partition of the property. These rights generally provide a Tenant-In-Common many of the benefits of sole ownership of real property.

Because TIC opportunities are often packaged by a sponsor with management and financing in place, TICs offer efficiencies in the identification, acquisition, financing, closing, and operating stages of real estate ownership. TIC ownership also allows an owner to diversify a real estate investment among multiple properties. The low equity requirements may also allow smaller individual investors to invest in large institutional investment properties that they could not otherwise afford on their own. Income generated from a TIC property can often be sheltered from tax through using depreciation and interest deductions.

Though not guaranteed, the objective of owning properties of this type is to potentially provide stable monthly income with low to moderate appreciation. Because TIC offerings are often packaged with management and financing in place, TICs are considered a passive approach to investing, and as such may offer a more simplified solution for the 1031 investor searching for replacement property.

Due to the nature of these investments, regulations require that Tenant-in-Common investors are both accredited and experienced. A person is considered accredited if they have a net worth of one million dollars (including their home and personal possessions) or an annual income of $200,000 (single) or $300,000 (joint).