TICs – Tenant In Common Investments
A Tenant in Common property ("TIC") allows the seller of real estate to qualify for a 1031 tax free exchange of the property sold in exchange for an ownership interest in another investment property. Brokerage firms have begun selling fractional ownership interests in real estate to persons who have recently sold or are considering the sale of an appreciated piece of property as an alternative investment vehicle that preserves the tax free status of a property exchange.
It is imperative that broker-dealers selling TICs perform adequate pre-sale due diligence and on-going monitoring of the TIC investment. Pre-sale and subsequent due diligence are conducted by the brokerage firm's due diligence department personnel. At the very minimum due diligence of the financial statements, background checks of the promoter and key persons and an appraisal of the underlying real estate must be performed. Some common problems with TIC's may include:
- The loss of management control of a real estate investment. A professional management company will be handling the day to day.
- A TIC is a prepackaged deal whereby everything has already been negotiated and the deal is ready to go. Contracts, TIC Agreements, loan documents are generally not negotiable.
- TICs are considered long-term investments, whether that means 2 to 5 years or 10 years. The property will be resold and you will benefit from your pro-rata share of the sale proceeds at that time. Real estate is illiquid, and there is no orderly or developed secondary market for TICs.
- A TIC is group investment with others unknown to you. You own a deeded percentage interest in the property along with a group of other investors.
- A TIC may be an unsuitable investment if the purchaser needs to live entirely on the cash flow from it.
Warning signs that a TIC may be failing may include the failure of management to communicate with the investors or a freeze in dividend or interest payments. For more information or to discuss the specific facts of your TIC investment, please contact us.