1031 Exchange and TIC's: Common Questions
  • Q: What is a TIC?
    A:TIC is simply a form of concurrent real estate ownership.  TIC is an abbreviation for "Tenant in Common".  This form of ownership may be used when more than one person (or entity) owns a property. Some of the main characteristics of TIC ownership are:
    • Two or more people co-own a parcel of real estate without the right of survivorship.
    •  Each co-owner can choose who will inherit his/her ownership interest upon death. 
    • TIC owners own percentages in an undivided property rather than particular units or apartments, and their deeds show only their ownership percentages.
  • Q: What types of properties are owned as TIC's?
A: Any real property can be owned as a TIC.  The common types of real estate that we see owned as TIC are as follows:
  • Residential TIC's - Most typical in areas like San Francisco and New York City where several parties co-own a multi-unit property with each owner desiring exclusive use of a unit.  The exclusive use is derived from a separate Tenant in Common Agreement. 
  • Vacation TIC's - Vacation home buyers and resort developers use the TIC form of ownership instead of the traditional timeshare arrangement.
  • Commercial TIC's - Income property investors pooling resources to co-own large commercial or institutional grade real estate.
  • Q: What to be aware of with a residential TIC?
A: There are numerous considerations when acquiring a residential TIC, just a few to consider are:   
  • The exclusive use to a unit will only come from a well written TIC agreement.
  • Each co-owner can sell his/her interest at any time although the sale may be subject to right of first refusal by the other owners and/or buyer approval, as per the TIC agreement.
  • Many lenders will not provide individual loans for TIC interests, so group financing may be necessary.
  • Q: What are the possible pros and cons of a commercial TIC?
A: The pros and cons of each commercial TIC will be largely dependent on the uniqueness of the underlying real estate.  In general, some of the pros and cons of this type of investment include:
  • Pros
    • Allows individual investor access to better/larger properties
    • Professional Property Management
    • Economies of scale
    • Predictable and stable cash flow
    • Diverse tenant mix
    • Non Recourse Financing
  • Cons
    • Liquidity, no established secondary market
    • Group decision making
    • No ability to individually pull money out (refinance)
  • Q: Can a TIC be part of a 1031 Exchange?
    A: Provided the real estate is used for business or investment purposes real estate owned as a TIC can qualify for a 1031 Exchange.
  • Q: If I sell a TIC and 1031 Exchange, do I have to buy a TIC?
    A: No. In a 1031 Exchange, property that is co-owned with one or more individuals can be sold and the replacement property can be individually owned.