Priced out of the soaring real estate market, but still want a piece of the pie? Real estate investors are turning to tenancies in common, or TICs, for the twin benefits of increased buying power and greater flexibility.
Under the TIC ownership structure, multiple parties can pool resources to buy property. The ownership stakes can vary, with any income produced or expenses incurred passing to the tenants according to their percentage of ownership. What's more, tenants retain the right to sell their interests at any point, says Craig Brown, vice president of Investment Property Exchange in Dallas, who explains that groups that form a limited partnership to invest in real estate have less flexibility.
"TICs let owners go their separate ways," Brown says. "One person can sell and pay tax on their capital gains. Another [can] defer taxes by exercising a 1031 exchange and reinvesting the money--everyone gets to do what they want with their piece of the pie." As individual fractional owners, tenants in common can also take tax deductions for the depreciation of an investment property. "If you formed a partnership to invest in property, the partnership entity--not the individual investors--would get that depreciation," explains Brown.
But the tax advantages of a TIC come with a caveat--namely that your co-tenants have the same rights. "It can be a great structure for friends who want to own property together," says Brown. "But when one investor sells, the others may end up owning property with someone they don't know, or you can have an argument and the investment can become cumbersome."
Jennifer Pellet is a New York City freelance writer specializing in business and finance.