Tenants In Common Properties (TICS) and their Benefits

TIC is an acronym for tenants in common.  Tenants in common is a form of property co-ownership that has existed for about 800 years (since the Magna Carta was re-drafted in the year 1216).  Back in those days, people would own large tracts of land as tenants in common for raising crops and livestock.

 TICS are increasingly becoming the most common form of ownership for very large properties, where different and unrelated co-owners, who nevertheless share the same goals, wish to combine their equity in order to purchase an asset much larger and much safer than they could purchase on their own.

 Joint tenancy is also the term used for properties owned by more than a single person.  For instance, most married couples hold title to their residence as Joint Tenants with Rights of Survivorship (JTWROS).  With TICS, rights of survivorship are not passed to the other co-owners but to the heirs and beneficiaries of each of the co-owners.

Today, co-ownership as tenants in common generally refers to very large income producing properties that are offered by tenants in common property Sponsors.  A sponsor is a real estate investment company that specializes in the acquisition and sale of co-ownership properties.

Since May of 2002, when the IRS issued it’s guidelines on tenants in common properties with regards to section 1031 of the Internal Revenue Code, TIC property purchases have grown from about $1 billion in total property purchased to over $20 billion in 2007.

The increasing popularity and dramatic growth of tenants in common property ownership is due to the fact that TICS can be used for IRS 1031 tax-deferred exchanges.  This means that a real estate owner and investor can sell their investment property, use a 1031 exchange to buy another investment property (such as a TIC) and defer all capital gains and any depreciation recapture in the process.  There are many benefits to TIC property ownership.

TICS enable the investor to invest the full sum of their seller’s proceeds (net equity) into the new property. 

TICS enable the investor to grow their equity very quickly, since they do not have to reduce the equity invested in the new property by paying taxes or depreciation recapture. 

TICS enable the investor to greatly increase their income, since all the equity goes into the new property, and thus, more income is generated.

TICS enable the investor to own a deeded, fee-simple, title insured and undivided interest in a much larger property, with attributes such as greater size, stability, cash-flow and upside profit potential.  These larger assets also enable the efficient use of professional property management companies, which relieve the co-owners of the day-to-day burdens of management and ownership.

TICS give real estate investors the EXIT STRATEGY that they have always dreamed of but could never find.  Now they can sell all of their individually owned properties, use a 1031 exchange and pay no capital gains taxes on the sale, and then purchase TIC properties.  This enables them to finally RETIRE from the burdens of property management and ownership and at the same time, increase their monthly income dramatically.

TICS also give real estate investors something they never dreamed of, and that is a way to pass on their accumulated real estate wealth to their heirs and beneficiaries, those who may not have any desire or experience in managing or owning real estate.  Since TICS are managed by professional property managers, even if the co-owner passes away, the income continues with no hassles to the heirs or beneficiaries.  If the heirs and beneficiaries continue to do 1031 exchanges into subsequent TICS, then the total equity is preserved and grown, no capital gains taxes need ever be paid, and the monthly income is increased.  Through this method, multiple generations of heirs and beneficiaries can enjoy the benefits of equity growth through property ownership, tax deferred exchanges, tax-sheltered monthly income and absolutely no hassles of property management.