Under Tenancy-in-common or TIC arrangement, you are allowed to co-own an investment property with one or more investors. A TIC investment is a great tool for small or medium-sized investors looking to purchase large investment properties without investing huge capital. A TIC structure usually has up to 35 investors. Investors often mistake a TIC investment with joint tenancy; however, they are entirely different. You can use a TIC investment to close your 1031 exchange.
TIC investment offers several benefits.
- Opportunity to own large properties – Say, you always wanted to own a premium investment property but never had the required funds. With a TIC investment, you can fulfill your dream of owning a large property in a limited budget.
- Steady income – Signing up for a TIC Investment ensures a steady income, appreciation, tax benefits, etc. With a TIC property, you are likely to get prominent tenants with high credit ratings. So, the chances of default are very less.
- Shared risk – As up to 35 investors co-own the same property in TIC, the risk gets distributed among all the investors. Therefore, if the property suffers any damage in case of a natural disaster, every investor contributes to repair.
- Name your heir – Another reason why a TIC investment is beneficial is that it lets you choose an heir for your property. After your demise (everyone has to die one day), your heir will receive the property title and shares.
- Be the owner – Even though a TIC investment is all about shared ownership, every investor owns the entire property and not a specific portion.
Like any other investment, TICs also have a few drawbacks. For example, mortgaging a property may complicate the situation in a TIC arrangement. Every owner of a TIC property must sign the mortgage documents. The loan interest is divided equally among all investors. However, if any member refuses to pay their share of interest, other investors will have to cover the deficit. Plus, in case of a default, the lender will claim the entire property, and you may lose the title even after paying your share of interest.
As there could be potential risks in a TIC investment, it’s recommended that you speak to TIC investment professionals before investing.
Make your 1031 property identification process less suffering.
When it comes to property identification in 1031 exchanges, you’re left with only two options – keep hunting until you find an ideal replacement property or look for an alternative. The first option involves planning in advance. For example, make a list of 1031 properties that you might want to purchase. Having a list of 1031 properties can help close the identification before the deadline. You can visit a local broker in your area. If you are riding high on luck, they will provide you a list of available properties. You can also wander on the websites of real estate firms that facilitate 1031 exchanges.
Another way is to look for an alternative. By investing in DSTs or TICs, you can get rid of the pressure of identifying a replacement property within 45 days. A DST investment is highly rewarding and qualifies for 1031 exchanges. You can invest in multiple DST properties at one time.
Irrespective of what you choose, a financial advisor can be a precious aid. Don’t forget to speak to your advisor.