In areas with a rapid increase in real estate prices, alternative ownership options are becoming very attractive. One that is seeing its popularity sour recently is Tenancy in Common, also known as a TIC. If you’ve never heard of it, it not only offers a way to invest in ownership of otherwise unaffordable real estate, it can provide an outstanding – and totally legal – method of tax deferment frequently used by the world’s most successful real estate tycoons.
What Is a TIC?
In a TIC, two or more people share ownership in a parcel of property. Technically, each co-owner owns an equal share but may have a different portion of interest. For example, if 10 co-owners own a parcel, they may each own 10%, or one may own 25% with the rest sharing the remaining 75%. Unlike joint ownership, there is no right of survivorship, meaning that upon a co-owner’s death, ownership does not pass to the other co-owners, but to the person designated in their will as the inheritor.
Who Gets to Live There?
TIC owners do not necessarily get to inhabit the property they own. Since they own a percentage of the entire parcel, their ownership may not be tied to a living unit.
TIC occupancy rights are a serious issue to consider if you’re considering joining. If you wish to live in it, the contract should state that it will be vacant, or, if occupied, you should check state and local laws to determine if grounds exist to evict the tenant. Consider future rental issues and make sure the contract clearly spells out what you need.
TICs are often an excellent choice for areas that restrict converting buildings to condominiums. Since the TIC divisions aren’t legally recorded on a deed, the co-owners can create a condo-like arrangement by signing a memorandum of agreement. Make sure this document describes the individual interests and has all the standard legal protections.
What (If Any) Financing Will You Get?
Will you finance your individual ownership interest or get blanket financing for the entire property? Financing a TIC doesn’t always have to be complicated, but individual financing and interests passing through estates can make things hard to follow.
Lenders can also have requirements regarding renters and clear lines of ownership. Will there be dues? How will repairs and management be paid for? You should have anything you don’t fully understand explained by your attorney, and make sure any provisions you want are clearly spelled out – never rely on informal agreements.
Purchasing TIC real estate can be an excellent option for concurrent ownership in the right situations. Just be sure you know what you’re getting into, have good legal advice and full documentation of all your rights and obligations.