Demystifying Tenants In Common

One strategy of acquiring investment properties is to pool individual owner’s equity stakes and take title as Tenants In Common or a TIC.  TICs feature an undivided unity of possession, but they may, or may not have unities of percentage of ownership, title, or time of acquisition and disposition.  Upon the demise of a co-tenant their interest passes to their devisees/heirs, not the co-tenants.

It is critical that an executed Operating Agreement be in place to define critical items including:

*Ownership percentage
*Conditions underwhich the property will be sold
*How distributions from operations will be made
*Rights and responsibilities of each investor

STRENGTHS INCLUDE:

  1. Pooling resources may permit the ownership of far larger assets than could be acquired individually, resulting in economies of scale for  management and maintenance.
  2. Overall flexibility. TICs permit owners to sell,  encumber, or convey their interest without permission of their co-tennants.
  3. Depending on the structure of the Operating Agreement, TICs may permit General Partners to run the asset, allowing investors to have the benefits of owning an asset without having to be involved in routine operations.

WEAKNESSES INCLUDE:

  1. Litigation is more likely.
  2. Closings are more cumbersome.
  3. Coordinating items that require input from the co-tenants is more involved.

Note:  The information contained herein is deemed accurate and reliable, but is not guaranteed.  To assess applicabilty to individual situations please consult your legal proffesional.

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