Tenants in Common, also known as Tenancy in Common, is a type of real estate investment that allows two or more individuals the opportunity to own an undivided, fractional interest in a property. Upon the closing of the property, the owner receives his/her individual deed for their pro-rata share of the purchase. Ownership interests may also be passed on or willed to inheritors with a Tenant in Common asset. Elizabethtown hd The main reason most investors are attracted to Tenancy in Common investments is that the average investor is now able to participate in ownership of a high quality, management free investment grade property which they could not have afforded on their own. In addition, this purchase qualifies for their 1031 exchange.
Q: How much equity is required for a Tenant in Common Property?
A : The Revenue Procedure 2002-22 was published by the IRS as guidelines how to set up 1031 TIC properties. Under these guidelines, there is a limitation of up to 35 Tenant In Common co-owners that can own a TIC property. The minimum equity amount is dependent on how much equity is required for the project. The larger the real estate asset, the more equity per co-owner is needed. This minimum amount will range in the $150,000-$400,000.
Q: What will occur if I don’t close on my 1031 tax exchange?
A: Failure to perform a 1031 tax exchange will result in you paying full capital gains tax. One of the great advantages of identifying a Tenant in Common property is that all the due diligence is already performed by the TIC sponsor. In many instances during due diligence of the other selections by the investor, some unforeseen things can occur such as issues with the title, a egregious clause in the lease or having a contaminated site…and the investor has to terminate the deal. However with a Tenancy in Common investment, the TIC sponsor will have already spent $10,000’s on their due diligence before they even present the property to the potential tenant in common investors. Even if your heart is set on another high quality, management free investment such as a triple net property, it’s prudent to at least identify one 1031 TIC Property just in case your preferred properties fall through.
Q: What happens if you fail to close on the 1031 exchange?
A: You will have to pay your capital gains taxes. Failure to close is the top reason clients reveal as to why they pay capital gains. By identifying a Tenants In Common property, you can reduce your potential tax risk and avoid a failed closing. If you fail to close on other identified properties, you are able to move all your proceeds into the Tenants In Common property you identified.
Q: What liability am I exposed to with a Tenant in Common Property?
A: Another benefit of owners of a 1031 TIC Investment is that you don’t have the worry concerning financing. In most circumstances, the TIC sponsor has already arranged non-recourse financing, which means you are not personally liable for the investment. The worst case scenario is you lose your principal investment; but the bank can’t go after you for the mortgage. Moreover, the lenders generally structure the loans whereby the TIC owners can assume the loans without the need for any qualification or having to pay assumption fees.
Q: What happens if the group of co-owners decide to sell, but I don’t want to sell?
A: If the group decides to sell the property, usually a 75% majority vote is necessary to break any impasse resolution among the fellow owners. For example, if the minority group of let’s say 25% ownership does not agree, they have three options at their discretion. Either agree to the sale, buy out the majority on the same terms offered to them, or agree to change their dissenting vote to a consenting one.
Q: When I die what will happen to my Tenants in Common deed?
A: Just like any other investment property, your ownership interest in the TIC property will pass on to your heirs pursuant to your will. Currently, the estate tax code allows the heirs to receive a stepped-up tax basis to fair-market assessment, however not all situations are similar, please consult with your CPA and/or tax consultant. Additionally, the capital gains tax which you deferred via your 1031 tax deferred exchange are possibly pardoned forever.
Q: Who is allowed to invest in a Tenancy in Common Asset?
A: Only accredited investors qualify, meaning you must have a minimum net worth of at least $1,000,000 or make an annual income of $200,000 or more for the last two years. If you are married, you can have a combined income of $300,000 for the last two years.
Q: How long do the co-owners typically own the Tenant in Common Investment?
A: Most TIC sponsors state in their memorandums that they indent to hold the 1031 TIC property between 4-8 years. At that time you will be faced again whether to pay capital gains or to exchange into another 1031 property.
Q: Am I allowed to sell my Tenancy in Common asset?
A: Yes, as long as
Q: download Storm Watch What are the greatest benefits regarding the purchase of a Tenant in Common interest for a 1031 exchange?
A:
- Flexible size to match your needs
- Pre-arranged financing
- Limited Management Responsibilities
- Possibility for increased revenue stream with rental increases
- TIC properties can be identified and closed in a suitable time frame
- Investors can diversify. Instead of putting all your eggs into one basket, why not spread out your holdings over several quality investments.
- Even for those investors that wish to purchase another property, usually there is leftover funds that will be taxed. Those extra funds are ideal to place in a Tenant in Common investment property.
TIC Buyer Beware .
TICs should be offered as a security with appropriate due diligence and transparency of all Sponsor fees. We recommend you avoid a TIC that is not packaged as a security. Tenants in common structured as securities are offered through Registered Representatives who are appropriately registered through and associated with an actively registered broker/dealer that is a member of the NASD (National Association of Securities Dealers). Offerings are sold by a Private Placement Memorandum only, and are offered solely to pre-qualified Accredited Investors.
Recommended TIC Referral
If looking at TICs we recommend you only purchase TICs from a professional who is both real estate licensed and securities licensed. If you would like to be put in contact with a Registered Representative that has access to tenants in common’s sold as securities nationwide, please contact our office.
Disclosure
Certain real estate professionals affiliated with Westwood are dually licensed and therefore have their securities license to sell TIC properties. These professionals are Registered Representatives with MICG Investment Management LLC. Westwood Net lease Advisors and MICG Investment Management are not affiliated in any way.
MICG Investment Management LLC Branch office at 5121 Center Street, Suite 100, Williamsburg VA 23188
To be connected to a licensed TIC representative call 866-638-1031 ex 102 (Susan Gitt)
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