Benefits of a Tenant-In-Common Investment Property

You have probably read about the benefits of completing a 1031 exchange so that you can defer the payment of your income taxes upon the disposition of investment real estate, and the ability to acquire tenant-in-common investment property interests as like-kind replacement investment property to complete your 1031 exchange. 

But, there are so many more benefits that should be discussed regarding tenant-in-common investment properties also known as TIC investment properties or just TICs for short. 

Potential For Increased Cash Flow

One of the biggest challenges for a real estate investor completing a 1031 exchange is to locate, identify and acquire suitable like-kind replacement properties that provide good cash flow.  Tenant-in-common investment properties often provide the real estate investor with a better like-kind replacement property alternative because of the increased cash flow opportunities.

Real estate investors often find they are only earning 1% to 3% on their current investment property.  The actual return could be increased two or three times by completing a 1031 exchange into tenant-in-common investment property.  The amount of potential cash flow is based on the equity or capital invested in the tenant-in-common investment property and is typically between 5% to 8% depending on the geographic area, asset type, and performance of the property.

Investment Diversification

Diversification is extremely important for any investment portfolio whether we are talking about stocks, bonds, mutual funds or investment real estate.  Tenant-in-common investment properties allow the real estate investor to assemble a diversified real estate investment portfolio. The diversification can be accomplished on a number of different levels including quantity, asset class (property type), and geographic location. 

Institutional Investment Real Estate

Tenant-in-common investment real estate generally consists of class A or class B institutional quality commercial real estate valued between $10 to $100 million.  Tenant-in-common investment property offerings allow real estate investors to acquire undivided fractional interests in these institutional quality investment properties that they would most likely not have access to otherwise.

Professional Property Management

You have most likely heard the phrase the "Terrible "Ts."  The Terrible "Ts" refers to the headaches of owning and managing investment real estate.  It includes headaches such as tenants, taxes, trash, toilets, teenagers, toddlers, and more.  Tenant-in-common investment properties eliminates many of these headaches because they have professional, institutional investment property managers in place to address all of the day-to-day property management isuses.  Real estate investors that are tired and fed up with the day-to-day headaches of investment real property management will appreciate the benefits of tenant-in-common investment property ownership.

Professional Asset Management

Asset managers are generally in place in most tenant-in-common investment property offerings.  The asset manager is responsible for ensuring the property is being put to its best use, changes are made when needed to enhance the properties value, including when to sell and 1031 exchange into other investment property. 

Professional Sponsors or Syndicators

Real estate investment companies that are often referred to as sponsors or syndicators structure these tenant-in-common investment property offerings.  The sponsors are responsible for the due diligence, acquisition, financing, property and asset management and ultimate disposition of the tenant-in-common investment real estate.

Modest Investment Requirements

The minimum investment requirement for tenant-in-common investment properties is generally between $100,000 and $300,000, but depends on the size of the tenant-in-common investment property offering.  The low minimum investment requirements allows real estate investors to really diversify their investment real estate portfolios by selling one relinquished property and subsequently acquriring multiple tenant-in-common investment properties.

Non Recourse Debt

TIC Sponsors or TIC Syndicators generally arrange for the TIC investment property financing upfront, which is typically non-recourse to the real estate investors.  Non-recourse debt means that the lender can not go after the real estate investor's personal assets should there be a default on the debt.  The lender can only go after the subject property that was financed.

Due Diligence Completed

It is not easy for real estate investors to locate, identify and acquire suitable like-kind replacement property within the required 1031 exchange deadlines and still perform a good and thorough due diligence on the target property.  The TIC Sponsors or TIC Syndicators perform a very thorough due diligence on the TIC investment properties, and the TIC lenders also perform their own thorough due diligence of the TIC investment property well before the TIC investment offering is brought to the market.  So, there is generally quite an inventory of tenant-in-common investment properties on the market and ready for purchase at any one point in time so that real estate investors always have plenty of TIC investment properties to choose from when they are with in their 45 day identification period.

Reduces Risks Due To Tight 1031 Exchange Deadlines

Real estate investors can usually not only identify tenant-in-common investment properties within the 45 day identification period, but they can usually close on the TIC investment property during the 45 day ID period as well.  This significantly reduces the real estate investors risk related to the 45 day ID period and whether they can locate and identify property in time. 

Sophisticated Professional Disclosures

TIC investment property offerings provide significant levels of disclosure information through the distribution of Private Placement Memorandums or PPMs.  The PPMs include all the details of the TIC investment property offering including the appraisal, financial, lease summaries, legal opinion and any negative impacts such as environmental issues.

These are just some of the benefits of investing in TIC investment property offerings.  You should sit down with a TIC investment property broker and discuss the various pros and cons of TIC investing and then have your legal, financial and tax advisors review before investing in any specific TIC investment property offering.