Tenant in Common investments or TIC investments for short, are a relatively new concept that allows a small pool of up to 35 real estate investors to buy commercial or institutional grade real estate property, each investor essentially becoming a fractional owner of the investment property. Many real estate investors take advantage of TIC investments in order to take part in 1031 property exchanges, which allows the deferral of taxes. Prior to 2002, TIC investments were not considered eligible properties, thus TIC investors were prohibited from taking the tax advantages inherent in a 1031 Exchange.
Many small investors, who want to take advantage of the tax deferred benefits of a 1031 Exchange but prefer not to purchase another investment property, can use the proceeds from the sale of their investment property and invest it in a TIC investment which satisfies the like kind requirement. Some investors choose to participate in the TIC investment as a way of maximizing financial benefit, while minimizing time and work expenditures.
Generally, TIC investment opportunities come “pre-packaged” meaning that the provider or sponsor of the TIC investment has property management and (some times) financing already in place. Such an investment offers significant efficiencies in identifying, acquiring, closing and managing the TIC property. Even so, the investor should exercise due diligence in researching not only the investment property, but the sponsor of the TIC investment, as well as the property management company.
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The TIC investor benefits from regular cash flow, generally paid on a monthly basis, and the ability to investment in potentially several high quality commercial or institutional properties, with only a minimum equity requirement, which may be as low as $100,000.
An individual considering a TIC investment should understand that TIC investments are relatively illiquid, and generally have holding periods of up to 10 years or more; they should also understand that the selling of TIC interests are often difficult, there being no active secondary market. To be considered an investor for purposes of the IRS code 1031 Exchange, an investor has to qualify under the definition spelled out by Regulation D of the Securities Act of 1933, which provides specific minimum wealth requirements. Additionally, TIC investments have fees and expenses that are unique to it which may impact the anticipated return on investments. As with all real estate investments, the TIC investment is subject to the risks of fluctuation, market conditions and the overall economy.
Sources:
http://smallbusinessreview.com/for_the_boss/Small_Investors_Get_Big_Real_Estate/
http://www.weltonstreet.com/Investments.aspx
http://www.navigar1031.com/selling/TIC_defined.htm
http://www.tm1031exchange.com/content-pages/tenant-in-common-investments.html
