Who Should and Who Should Not Consider a TIC (Tenant in Common) Commercial Real Estate Investment?

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This release summarizes the type of investor that should and should not invest in a Tenant in Common (TIC) property - a hot property investment choice today. They are not for everyone. Includes an excerpt from the new book, Effortless Cash Flow: the ABCs of TICs (Tenant in Common Properties).

Tenant-in-Common (TIC) properties are a 'red hot' investment choice today. But are they for everyone? Who should consider investing and who should not? Why are TICs popular?

"TICs are popular because they are high quality, institutional-grade real estate properties that have a monthly cash flow from day one," says Kathy Heshelow, President of Legacy Real Estate & Investments and a licensed registered representative with CapWest Securities. "Many investors find the fact that they do not have to manage a TIC or be involved in any daily activities to be very appealing, whether they are a retiree or whether they are a busy professional. TICs are pre-packaged and ready for suitable investors."

Further, for any investor conducting what is called a 1031 tax-deferred exchange, TICs offer a great solution, explains Heshelow. A 1031 tax-deferred exchange, referring to a section of the Internal Revenue Code which allows deferral of tax on gains if the proceeds are reinvested, has been used for years by real estate investors. However, the time requirements to conduct a 1031 exchange are short and stringent for a typical real estate transaction. Since TICs are pre-packaged, an investor can easily meet the time requirements.

But who should and who should not be considering such an investment? First, most TICs require that the investor be 'accredited'. That is, the investor must have a net worth of at least $1M or a certain salary level. Most TICs are sold as 'real estate in the wrapper of a security'. Because it is a security, rules and regulations of the Securities & Exchange Commission (SEC) must be followed. Details on all of this are explained in Heshelow's book, Effortless Cash Flow: the ABC's of TICs (Tenant in Common Properties). Heshelow notes that many TICs that are not sold in the 'securities wrapper' are still requiring an investor to be accredited. So the first answer to the question posed is that only accredited investors should be considering a TIC investment (at least, almost always).

It is easier to list some of the examples when an investor should NOT consider a TIC investment:

  • Don't consider a TIC if you do not want to lose management control of your real estate investment. (A professional management company will be handling the day to day).
  • Don't consider a TIC if you need to negotiate everything. (These are prepackaged deals whereby everything has already been negotiated and the deal is ready to go. Contracts, TIC Agreements, loan documents, etc. are set).
  • Don't consider a TIC if this is to be a short-term investment. (TICs should be considered long-term, whether that means 2 to 5 years or 10 years. The property will be resold and you will benefit from your pro-rata share of the sale proceeds at that time. Real estate is illiquid, and there is no developed secondary market for TICs at this time).
  • Don't consider a TIC if you don't want to be in a group investment with others unknown to you. (In a TIC, you have a deeded percentage interest in the property).
  • Don't consider a TIC if you intend to live entirely on the cash flow from it. This would not be considered suitable in securities terms.
  • Most minimum equity requirements start no lower than $100,000 - they are usually higher. So if the proceeds from your investment property sale are lower than $100,000, it would be difficult to consider a TIC. In fact, many of the lowest requirements today are $250,000 to $300,000.

A few reasons to consider investing in a TIC include:

  • you are accredited and you want to diversify your real estate into various property types or geographical areas.
  • you know real estate but are tired of managing it.
  • you want a cash flow and enjoy the tax benefits of real estate, but this is not your only income.
  • you want to diversify your overall investment portfolio of stocks, bonds, mutual funds, business investments, etc.
  • you want to 'trade up' to better quality real estate.

The new book, Effortless Cash Flow: the ABC's of TICs (Tenant in Common Properties) addresses these and further points on investing. The book also discusses the history of the TIC and the 1031 exchange, the Players in the TIC world, and Exit Strategy, among other topics. TICs are most often large office buildings, retail shopping centers, or large apartment complexes. Sometimes industrial buildings, hotels or other asset classes are offered.

"I think that TICs offer many advantages and solutions to the right investors, but each and every investor must understand the downsides and go into this with their eyes wide open," states Heshelow.

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Kathy Heshelow

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