TICs are fractionalized, fee-simple interests in real property, which were increasingly used in 1031 tax-deferred exchanges since 2002 when the IRS clarified their compatibility for 1031 exchanges. While the purchase of TIC interest is technically a real estate transaction, TICs was largely sold as securities during their peak in 2003-2007. However, during that time there were many TIC sponsors that sold their TIC properties as real estate. In this format of tenant-in-common real estate ownership, investors receive their own warranty deed for the purchase of a fractional interest in the entire property. Through TIC ownership, the average person can enjoy the benefit of owning an institutional-grade property with a minimum investment. With minimums as low as $50,000, investors may own percentage interests in multiple TIC Properties for maximum diversification. TIC Properties remove the barriers of investment real estate ownership for the passive investor. An added benefit of real estate TICs is that they are investments available to non-accredited investors.
TIC Properties are particularly suited for sellers of real estate involved in a 1031 exchange (“1031 Exchange TIC Properties”). Most TIC Properties are leased to national or regional tenants, such as Walgreens, AutoZone, and Dollar General, and provide a secure monthly income with no management responsibilities or out-of-pocket expenses. Each TIC property owner benefits from any income or appreciation enjoyed by all the owners. Even today, in 2018 there are a number of firms providing these types of investments to 1031 and cash investors.
When it comes to real estate investing “passive” is a two-edged sword. As investors approach retirement, their appetite for the hassle, moving parts, and market fluctuations diminish. They want their real estate investments to work for them and not them working for the real estate. But, to benefit from the passive income these properties can provide, a person must give up some control. This can be hard for some. As you consider your objectives, you might ask yourself, “Do I own the property or does the property own me?” Typically, when investors consider the lifestyle they want, giving up control is a small price to pay. Giving up day-to-day management headaches, ongoing decision-making, and unexpected expenses to receive passive income, can be an easy decision to make. A TIC Property owner receives their prorated share of the rent direct deposited into their bank account. Receiving passive income allows you to be anything but passive – allowing you to spread your time actively engaged in the things that matter most!