Why TIC Properties Aren’t Exactly Too Good to Be True
The concept of tenancy in common (TIC) is advantageous for many homeowners and investors. TIC makes homeowner ownership more attainable because you can enter an arrangement with other people to divide a property’s price and co-own it.
The cost of a TIC can be less than that of a condominium based on square footage, which can provide a significant return at resale. Compared to condo units, TIC properties appreciate just as fast but can be 20% cheaper.
Selling a business or investment property to buy TICs allows diversification; you can have different pieces of real estate instead of just one. You can even defer tax if you use a well-structured 1031 exchange.
While the benefits of TICs can make a long list, these properties have less-than-desirable qualities, too. Before you put your dollars on real estate through TIC for whatever purpose, bear these things in mind:
TIC Contracts Are Complicated
Considering that you won’t be the only one to have a percentage stake in a TIC, the legal side of the agreement can become complicated. Ideally, a TIC contract should reflect the best interests of all co-owners. In practice, though, the rights of some parties end up being less legally covered either by design or by mistake.
Although all parties could sit down and discuss what should the contract spells out, don’t assume that all agreed-upon points would actually be in writing. Talk to a trustworthy lawyer to ensure that you won’t be cheated or disappointed.
TICs Can Become Unattractive When the Market Turns Sour
The demand for TICs for sale has increased dramatically since 2010, but they spend more days on the market during downturns. If you decide to sell yours when the economy heads south, you might need to wait for a serious buyer for more than two months.
Many people can be allergic to TICs, especially those located in not-so-popular communities, during recessions. If a TIC makes sense for your situation now, be financially ready to keep it for a while in case another housing crisis comes along.
Laws Can Be Extra Tough on TICs
The law, in some areas, limits the advantages of TICs. In San Francisco, for instance, a rental TIC owner can only increase annual rent by 1.6%; condominium landlords don’t content with such restrictions. Also, you might find it trickier to evict tenants.
Moreover, you might not be able to turn your TIC unit into a condo due to several factors. It’s best to seek proper legal counsel to know whether condo conversion will be an option for you before proceeding with the purchase.
Few Lenders Are Willing to Take the Risk
Specialized loans exist for TICs, but the lenders that offer them are in short supply. Depending on where you live, you might be hard-pressed to a lending institution that’s willing to extend credit to you.
The benefits of TICs are not a myth nor a mirage, but their potential drawbacks are also true. As with other pieces of real estate, do your due diligence to make an informed decision.