Tenants in Common

Tenants in Common (TIC) is a legal arrangement where two or more individuals or entities hold title to a single piece of real estate. Think of it as owning a pizza with friends, but you don't all have to own an equal slice. One person might own 50%, another 30%, and a third 20%. Each owner, known as a “tenant in common,” holds a distinct, undivided interest in the entire property. This means that while you own a specific percentage, you have the right to use and enjoy the whole property, not just a partitioned section. The most critical feature of a TIC arrangement is the absence of a right of survivorship. When a co-owner dies, their share doesn't automatically pass to the surviving owners. Instead, it becomes part of their estate and is passed on to their heirs or beneficiaries as directed by their will, which typically involves a court process called probate. This structure offers flexibility in ownership percentages and estate planning, making it a common choice for unmarried partners, business associates, and groups of investors.

TIC ownership is built on a few simple but powerful principles that set it apart from other forms of co-ownership.

• Pillar 1: Unequal Shares are A-OK

Unlike other forms of co-ownership, TIC allows for flexible ownership stakes. This is perfect for situations where partners contribute different amounts of capital to a purchase. If John puts in 70% of the down payment and Jane contributes 30%, the property deed can reflect this 70/30 split precisely.

• Pillar 2: Your Share is Your Own

Each tenant in common has the right to sell, mortgage, or transfer their individual interest without the consent of the other owners. If Jane decides to sell her 30% stake to her cousin, she generally has the right to do so. This independence gives each owner significant control over their portion of the asset.

• Pillar 3: No Automatic Inheritance

This is the big one. The “no right of survivorship” rule is the defining feature. If John passes away, his 70% share does not automatically go to Jane. It passes to whomever he designated in his will or, if he has no will, to his legal heirs. This makes TIC a powerful tool for estate planning, ensuring your assets go exactly where you intend.

In the investment world, the TIC structure has evolved into a popular vehicle for pooling funds to buy large commercial properties—think apartment complexes, office buildings, or shopping centers. A “sponsor” or syndicator finds a property, organizes a group of investors, and structures the deal as a TIC. This allows individuals to own a fractional interest in a high-value asset they couldn't afford on their own. These arrangements are often designed to help investors defer capital gains taxes through a strategy known as a 1031 exchange, where proceeds from a sold property are reinvested into a new one.

Understanding TIC is easier when you compare it to its main rival:

1. Tenants in Common (TIC):
   • Ownership can be unequal (e.g., 60/40).
   • Your share passes to your heirs via your will and probate.
2. Joint Tenancy with Right of Survivorship (JTWROS):
   • Ownership shares must be equal (e.g., 50/50).
   • When one owner dies, their share automatically passes to the surviving owner(s), bypassing probate. This is a common structure for married couples.

A Tenants in Common arrangement offers fantastic flexibility, both in structuring an initial investment and in planning your estate. For value investors, it can be a gateway to owning a piece of institutional-grade real estate. However, this flexibility comes with complexity. If you're considering a syndicated TIC investment, due diligence is non-negotiable. Scrutinize the sponsor, the property's fundamentals, the fee structure, and the TIC agreement itself. Remember, your “partners” are the other investors, and disagreements can arise. Furthermore, your fractional interest can be highly illiquid—selling it might be much harder than selling a stock. TIC is a powerful tool, but like any tool, you must understand how to use it safely before you start building your portfolio.