Tenancy in common is a form of shared ownership between two or more individuals. Essentially, it allows individuals who would otherwise be unable to purchase a property, to buy a commercial income property as a group.
In tenancy in common, each owner is considered to own a percentage of the property, and they each receive a deed of ownership. Unlike coops or condos, tenancy in common owners DO NOT own a specific portion of the property. Consequently, their deeds only show their ownership percentages.
The tenants in common concept has become an alternative way for people to invest in real estate, particularly in commercial real estate investment properties. For those who don’t have the funds required to invest in a commercial income property, this method allows individuals to MAXIMIZE their buying and selling power.
It also allows them to earn a passive income without the management responsibilities required of other forms of commercial properties, such as multifamily apartment buildings.
Tenancies in common have also become more popular due to “fractional loans”, which allow each owner to get an individual mortgage. This decreases the risk of co-ownership, and also increases the marketability of the property, since owners can sell percentages of the property, which usually adds up to more than the sellers would get from single buyer.
Some Of The Advantages Of Tenancies In Common Include:
- Low minimum investment-You can buy a better quality property with fewer funds.
- Diversification– By reducing the investment, you can buy numerous properties, decreasing your risk and diversifying your portfolio.
- Flexibility– Tenancy in common can be used in 1031 exchanges, and if one deal falls through, you can increase your investment in a particular deal or invest in others.
- Financing– Most TIC properties have non-recourse financing in place that can be assumed without qualifying or paying loan assumption fees.
- Speed – Tenancy in common properties usually require no negotiation, no loan qualification process, and no credit checks or appraisal work, making closing quick and easy.
- Liquidity– High interest in tenancy in common properties makes them easy to sell. Because of the high interest in TIC investments.
- Simplicity– Tenancy in common properties are management free, so you can get a passive income without the hassle of some traditional types of commercial income properties.
- Safety – Tenancy in common properties attract stable, long-term companies who are financially strong.
In order to ensure a successful TIC, there are some factors that need to be considered when creating a tenancy in common agreement:
What is included in a tenants in common (TIC) agreement?
The Following Is A Partial List Of Issues A SACO Tenancy In Common Agreement Should Cover:
- Division of the property into “individual” and “group” spheres with regard to usage rights and maintenance responsibilities.
- Description of the owners’ financial obligations including initial deposits, reserve accounts, mortgages (if shared), taxes, common area maintenance and other expenses.
- Formulas for determining each owners’ monthly payment in advance and periodically adjusting the amount.
- Management of the property including accounts receivable, accounts payable, regular reporting, maintenance and janitorial.
- Rules governing usage of the property by the owners (e.g. pets, noise, floor covering) and enforcement provisions.
- Meeting and decision making procedures.
- Provisions defining when a default has occurred and describing remedies.
- Policy in the event of death or bankruptcy.
- Sale of interests, group approval of prospective purchasers, and rights of first refusal.
- Dispute resolution.
Interested in investing in a 1031 property as an additional way of diversifying your investment portfolio?
Westwood Net Lease Properties maintains connections with respected developers throughout the country, and can assist you in finding the property that best suits your investment goals. Contact Jeff Gitt at 314-757-1031 or at [email protected] for more information.