Optional Real Estate Investing via Tenant-In-Common



A sometimes forgotten structure for real estate ownership is Tenant-In-Common (TIC). This form of ownership is commonly used by unmarried couples buying a home together when the owners have different percentages of ownership. However, it certainly isn’t limited to unmarried couples. In many circumstances it can be the preferred way for two or more business partners to take deed of the property. The deed lists specific ownership percentages for each co-tenant.

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In fact, TIC can be the preferred way to hold ownership of a commercial property such as a small to midsized apartment building.

TIC Flexibility and Cost Savings

Besides not requiring a marital relationship and allowing two or more owners, there are other characteristics of TIC that work well for many business arrangements.

  • Ownership does not need to be equally divided. For example Matt could own 45%, Linda 30%, and Cameron 25%. As long as it adds up to 100%.
  • Unlike other business arrangements, there is no automatic right of survivorship. Barring any other agreement, upon death, the interest of one tenant in common owner passes to the person’s heirs.
  • The property does not have to be sold in whole by all TIC owners. Although “first right of refusal” is a typical condition of the agreement, it doesn’t have to be. Interest held by tenants-in-common may be sold separately by individual owners.

There are often cost savings not available in other business arrangements. You may use an attorney but you don’t need an attorney to enter into a TIC. The TIC is not registered with any government body other than the agency recording the deed. A formal recorded agreement is not required although it is often used. Accounting costs associated with partnerships, trusts, and corporation tax returns are not needed.

If you participate as an active investor, any losses you have can qualify as tax write-offs against your salary, dividends, interest, and other income. No real estate or securities license is required. For passive investors, the Tax Cuts and Jobs Act (TCJA) allows a 20% deduction for qualified business income (QBI). It’s worth noting, the TCJA did not make a distinction between active and passive investors when it comes to the QBI deduction. You may need help from a tax professional to sort this out.

Advantages of TIC

  • A TIC can enable one or more people to come up with a down payment that each would otherwise be unable to invest separately. This enables investing in larger and more profitable properties such as small and medium apartment buildings.
  • With two or more people on the deed, it is likely the amount of the mortgage can be much higher with those having a higher percentage of ownership borrowing a higher amount. However, all investors will have to sign mortgage documents and can become liable if another defaults.
  • Risk decreases among multiple investors. For instance, if one investor owned a four-plex and one unit went vacant, the vacancy rate would be 25%. A single vacancy in a 40-unit complex is a vacancy rate of only 2.5%.
  • When you own a building jointly, all owners must be in unanimous agreement on the price and terms before you can sell. When you own a property under TIC, you can sell your share of the building to anyone without your partners agreeing. However, specific TIC contracts may require that you offer other tenants the first right to make you an offer when you’re ready to sell. Or that they may be required to approve any new owners.

There are several other advantages as well as possible pitfalls depending on your business situation. And there can be complexities. As in most business cases, because the laws governing TICs vary from state to state, before you make any decision on your apartment building purchase, it’s a good idea to meet with your attorney and tax advisor.

Do you have experience with TIC? Please comment with your thoughts and experiences.

Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.