Why you should never invest in a TIC (Tenancy in common)
Recently, I have been looking into buying another investment property. I was looking for a condo in a big city in the west coast. I notice a few listing for TIC with a little discount compare to standard listings. Curious, here's a breakdown of what I found.
Never trust Fully real-estate agents
I was working with one agent and of course one is not representative of all agents. But she came highly recommended.
Her opinion was that TIC was not an issue. But of course, she's not you, the future owner. Also a good exercise in any business dealing, you need to ask yourself what is the other party incentive. For realtors, it is to close a deal. It doesn't matter much for them if you pay 5% more or less, they just want to close the deal to get their commissions.
Why buy real estate?
The reason to buy investment real estate should be the following:
- Build wealth in a tax efficient manner.
- Generate passive income
- Minimize your time invested.
The problem with TIC is that the legal structure is very weak in terms of protecting your asset.
Legal issues regarding TICs
There are 2 main legal issues regarding TICs
- Issue 1: Your TIC co-owners can have their creditor trigger the sale of the whole building.
- Issue 2: Liability lawsuit because of negligence of co-owner
Let's dig deeper into the issues separately.
Issue 1: Sale of whole building
Your co-owner creditors can go and get his part of the building ownership. However to get that part, they need to liquidate his part. If you can't buy his, then they would need to sell the building (including your part) and give you part of the sale (for your part). However, it's a lot of trouble and doesn't mean you can get the same value as you would in a normal sale.
Issue 2: Co-owner negligence liability
Your co-owner gets sue for negligence and someone gets hurt in in section of the TIC. Even it's his section, if he can't cover the judgement, you will be help accountable for rest. Co-ownership of property is basically a general partnership.
Bottom line, there are many issues and technicalities. But you have choices and you should only invest when it makes sense. There is no hurry and there are always better options than getting a TIC. You should always consults an attorney to get more information if you really want to invest in a TIC.
Here are some good resources:
- What are the dangers of owning assets as tenants-in-common- Asset protection attorneys
- Introduction To The Different Types of Tenancy In Common- SirkinLaw
If you like the content of the blog, please encourage me by clicking on the links of our sponsors and check out their products.
I also suggest you use Personal Capital to help you figure out your wealth. When it comes to personal finance, visibility is key. They have amazing FREE tools.
Subscribe to Be free and wealthy blog
Get the latest posts delivered right to your inbox