• Tenants in Common
• 1031 Terminology
• Further Reading
What is a Tenants in Common Real Estate Investment? In 2002, the IRS issued guidelines (Revenue Procedure 2002-22) governing the structure of Tenant In Common (TIC) property investments. These guidelines dictate that a Tenants In Common, also known as co-ownership of real estate (CORE), should have no more than 35 investors. The typical structure includes from 12 to 20 TIC/CORE investors in a property..
Tenants In Common investments vary from property to property. The minimum equity amount varies depending on the property, the amount of equity being placed, and the number of co-owners. Generally, loans range from 5-10 years and coordinate with the specific business plan set forth for buying the investment property. The typical stated minimum investments range from $100K to $650K, though some of the larger investment properties will have much higher stated minimums.
Each Tenant In Common investor receives monthly checks, with initial cash flow ranging between 5-8% of the initial equity (cash) invested. Overall annual returns are projected in the low to mid teens including cash flow, appreciation, and principal reduction of the non-recourse financing, depending on the property.
An investor's TIC/CORE interest can be purchased, sold, gifted, bequeathed by will, or inherited, and is subject to property taxes, gift tax, estate and inheritance taxes in the same manner as a sole ownership property.
Tenants in Common (TIC) properties are very wise and useful tools for real estate investors. With a TIC property, you own an undivided interest in a real estate property. You can receive the tax benefits, income, and the growth that is directly proportionate to your interest in the property. A single tenant may own a larger interest than the other tenants, yet, each owner receives a deed with the rights of a single owner.
Tenants in Common properties offer several benefits to real estate investors. Low equity requirements allow smaller individual investors to invest in large institutional properties. TIC properties eliminate the hassles of being a single landlord or property manager. Income from a TIC property can often be tax-sheltered through using depreciation and interest deductions.
When combined with a 1031 tax exchange, TIC properties can be even more attractive. 1031 tax exchanges allow you to defer capital gains taxes by investing in a like property. When using TIC properties with a 1031 tax exchange, you can defer capital gains while diversifying your investments. You can purchase shares of various TIC properties in different locales with the proceeds of the 1031 sale.
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