What is a Tenant in Common (TIC) Property and how is it used in a 1031 exchange?
Land, an office building, apartment complex or any real estate interest can be exchanged into a fractional ownership (TIC) investment.
Visually, think of a investment property as a round pizza cut into slices. Instead of buying the entire pizza or property, you are purchasing a portion or a slice of the entire deal. Tenant in Common real estate transactions are structured so that you can own a fixed percentage of the real estate transaction and it qualifies for 1031 exchange purposes. The amount of the offering and the percentage of monies you invest in a given deal will determine your ownship percentage.
The structure of a TIC is ideal for an investor who wants to move away from the day to day management responsibilities. The sponsor of the TIC assumes or arranges for a professional management company to handle the daily responsibilities so it becomes a passive investment. In most structures you receive a monthly check based on cash flow returns as a percentage of your investment plus when the property is sold in the future, the TIC investor receives 100% of the upside appreciation.
In smaller 1031 exchanges the TIC allows an opportunity for the investor to upgrade from a lower class of property ownership to a higher class of building such as a Class A, institutional grade property like a 500,000 square foot office tower, a multi-family apartment complex, an anchored retail center and/or many other asset types of a similiar nature.
In larger exchanges the investor will use TIC's to diversify their holdings and/or they may allocation a portion of their monies to be invested in this strategy.
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| TIC Industry Snapshot |
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The TIC industry has grown from a million to a billion dollar industry from 2001 to present day. TIC volume is expected to reach $4.5B in 2007, a 13% increase from 2006.
TIC's can be used as a primary strategy, secondary back-up or a combination of both whole property purchases and fractional ownership.
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| Equity Per Asset Type - 2006 |
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| The breakdown of monies invested into TIC offerings is as follows:
- Office Buildings (46%)
- Multi-family (27%)
- Other, assised living, hospitality, golf course, self storage, oil & gas (13%)
- Industrial (8%)
- Retail (6%)
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