|
What is TIC - Tenants in Common?
An alternative to sole ownership of real
estate is an investment in a single commercial property by
multiple owners, not as limited partners or as an entity, but as
individual owners. This form of ownership is known as co-tenancy
or tenants in common (TIC).
Under this co-ownership structure, you
own an undivided fractional interest in an entire property and
share in your portion of the net income, tax shelters, and growth.
Further, you will receive a separate deed and title insurance for
your percentage interest in the property and have the same rights
as a single owner.
The purchase of a tenant in common (or undivided fractional
interest) structure allows investors to purchase an interest in a
significant real estate asset, perhaps larger than they could
obtain individually. The investor acquires a percentage ownership
(title and deed) and receives passive rental income while
receiving the tax benefits of traditional real estate. The
investors own and control the properties, not a third party. TIC
ownership provides investors with the first ever means for
ownership diversity, both in location and type, of their real
estate portfolio.
|
|
This element of the investment structure puts no
individual owner (or group of owners) in direct control of the
property over any other investor(s). You can truly have all of the
ownership benefits and security of a large commercial asset with
significantly fewer obstacles. As with any type of investment real
estate, the value of a fractional interest typically increases
annually due to escalations inherent in most tenant leases. We
like to point out TYPICALLY, as tenants may leave, you may have
costly repairs, or other property ownership issues. |
TIC replacement properties are chosen because they can provide
credit-worthy tenants, secure monthly income, stability, and
growth potential. Furthermore, fractional ownership provides you
with the ability to diversify your 1031 Exchange into more than
one property and to participate in potentially larger,
institutional quality properties. Thus, small investors in one
area of the country may participate in net lease properties
(1031) all
around the country. When acquiring a TIC interest, it is
critical that it be classified as real property and not an
interest in a partnership or business entity. Why? Section 1031
specifically excludes "partnership interests" from tax
deferral treatment. If the IRS considers the TIC replacement
property to be a partnership interest, then, even if local law
would consider it real property, the exchange will not qualify for
tax deferral.
It is also important to know that federal securities laws may
govern the marketing of TIC interests in many, if not all, cases.
The federal code and regulations define a "security" to
be more than just the standard stocks and bonds that we generally
consider to be "securities." A registered representative
of a securities broker-dealer is used in these transactions.
Also see on RentLaw.com:
- Our 1031
Tax-Free Exchange Guide
and
Tax
Deductions
for Landlords
|
