TICs are popular among investors because they are typically less expensive than condos and single-family homes and provide a passive income stream. They also allow owners to avoid property management headaches. But TICs have their drawbacks.
A key disadvantage is that major operating decisions must be made unanimously by all co-owners. This may be problematic for experienced real estate investors who are used to the flexibility of individual decision-making. It also restricts the ability of TIC owners to sell or refinance the property without consent of all other owners.
Another concern is that TICs lack the right of survivorship. This means that when a co-owner passes away, his or her ownership interest will pass to the owner’s heirs rather than to the remaining TIC owners of the property.
One potential solution is for the TIC agreement to specify that any transfer of ownership must be subject to a requirement that a new owner vet the financial strength and credit history of all current co-owners. This would mitigate the risk that a single co-owner could fail to meet their payment obligations and put all owners at risk for foreclosure.
A key advantage of a TIC investment is that the Sponsor, which packages and organizes the investment, performs extensive due diligence on properties before acquisition. They then oversee the asset and third-party on-site management, often overseeing renovations that add value to the apartment community. Sponsors also deliver detailed property performance reports, personal investment information and annual tax forms for each Tenant in Common. In addition, a sponsor’s involvement and participation generally helps to keep overall operating costs low by ensuring the property is well-maintained and efficient.
