TIC Investments in 2018

Chances are if you’ve heard of, or are considering, Tenant-In-Common (TIC) investments then you are/were involved in a 1031 exchange at some point. Tenant-In-Common investments are where you take partial undivided partial ownership. A tenant in common investment is an alternative to sole ownership of real estate where investment in a single commercial property is held by multiple owners, not as limited partners or as an entity, but as individual owners. Under this co-ownership structure, you will own an undivided fractional interest in an entire property and share in your portion of the net income, tax shelters, and growth.

TIC’s are a great solutions for investors and 1031 exchangers in particular, because of their flexibility, ease of purchase (remember those 1031 deadlines?), and low investment minimums which was favorable for those seeking diversification.

On this page we’ll be talking about a few things:

  1. How TIC investments came into popularity
  2. Why TIC’s came into popularity
  3. The current status of the TIC market, and how to learn more about current TIC properties.
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TIC’s Rapid Growth in Popularity

For a long time, some real estate investors were reluctant to invest their 1031 exchange proceeds in TIC properties, as the status of these TIC arrangements with the IRS was unclear. Was the TIC arrangement really an investment in real estate (as required to be eligible for a 1031 exchange) or was it actually an investment in a security or partnership? The answer depends on the nature of the TIC investment, which the IRS has clarified in Revenue Procedure (Rev Proc) 2002-22. It specified the conditions under which the IRS may consider the purchase of a TIC interest an investment in real estate. According to Rev Proc 2002-22,“The central characteristic of a tenancy in common is that each owner is deemed to own individually a physically undivided part of the entire parcel of property. Each tenant in common is entitled to share with the other tenants.the associated rights to a proportionate share of rents or profits from the property, to transfer the interest, and to demand a partition of the property.” Ever since the clarification that Rev Proc 2002-22 provided in March of 2002 TIC’s grew in popularity. Next we’ll briefly review what it was that made TIC investments so popular.

What was/is so appealing about TIC’s?

Since many exchangers are looking for properties that provide cash flow, it’s no wonder that TIC’s grew in popularity as quickly as they did. Here’s a brief breakdown of the most significant benefits:

  1. Ability to acquire “institutional quality grade” properties; with National Tenants/long term leases
  2. No management hassles and headaches.
  3. Generally improved cash flow
  4. Tax sheltering is approximately 50 to 70% relative to the property selected
  5. Appreciation, depending on the market and type of property
  6. Low minimum investment (as low as $25k)
  7. Diversification as a result of low minimum investments
  8. Low cost prearranged, assumable, financing is obtained that is fixed rate and often non-recourse to investors.
  9. Replacement properties can be identified and closed in a timely manner due to their “off-the-shelf” nature
  10. In-depth due diligence by real estate company/sponsor, lender on each TIC investment property

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What about in 2018? What are my TIC options?

The TIC industry boomed from 2003-2007 with billions of 1031 money being invested in TIC properties. But if you’re looking for them after the real estate downfall in 2008 you may have noticed that they’re much harder to find. This has less to do with the validity of the Tenants-In-Common format, but rather, the industry came to a screeching halt with there being virtually no 1031 business post-crash. Subsequently, as the real estate market began to gain steam and the number 1031 exchanges increased, most of the previous companies that had put together the TIC deals turned their focus to other investment formats. However, there are still a number of companies using the Tenant-In-Common format. If you would like a list of TIC properties currently being sold please don’t hesitate to reach out and we can provide you a list.