TIC stands for Tenant-In-Common, which is a legal ownership structure where multiple investors co-own individual undivided interests in real property assets. TIC investments are often used for 1031 exchanges, which allow investors to defer capital gains taxes by reinvesting their proceeds from the sale of one property into another like-kind property.
TIC investments can be structured in different ways, depending on the type and number of tenants, the financing options and the management arrangements. Some common TIC investment structures are:
- A single-tenant property with an established credit rating.
- Multiple tenants subject to a single master lease with the TIC sponsor who subleases to the tenants.
- Multiple tenants subject to separate leases with each tenant.
- A vacant property that requires development or renovation.
Each TIC investment structure has its own advantages and disadvantages, depending on the investor’s goals, risk tolerance, and preferences. Some factors that may influence the choice of structure are:
- The level of control and decision-making power that each co-owner has.
- The amount and frequency of income distributions that each co-owner receives.
- The degree of liability and responsibility that each co-owner assumes.
- The ease and flexibility of selling or transferring one’s share in the future.
TIC investments can offer investors access to larger and more diversified properties than they could afford individually, as well as potential tax benefits and professional management. However, they also involve some risks and challenges, such as:
- Finding compatible co-owners who share similar objectives and expectations.
- Dealing with potential conflicts or disputes among co-owners.
- Facing limitations on financing options due to lender requirements or existing loans.
- Complying with IRS rules and regulations regarding 1031 exchanges.