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TICs: What They Are & What Investors Need to Know

Tenants-in-Common (TICs) are an arrangement whereby two or more parties own a fractional interest in a real estate property. In the early 2000s, TICs surged in popularity with investors, partly due to a tax-code change that enabled TIC owners to defer capital gains on real estate transactions involving property exchanges.

The newfound popularity slowly began to dissipate, however, following the real estate crash of 2008. As a result, many TICs began to see a significant decline in their value. Investors meanwhile quickly learned that their supposed “safe” investments were not so safe after all, as dividends from the TICs were cut or stopped altogether. Other TICs, including one of the largest TIC firms, DBSI Inc., filed for Chapter 11 bankruptcy protection.

A number of investors found out about the problems surrounding their TIC investments after the fact, as many came forth with claims that certain characteristics – including risk and liquidity issues – of the TICs had been misrepresented to them.

The structure of TICs can be complex – and highly risky. The fractional interests of a TIC generally are not liquid investments. That means it’s difficult, if not impossible, for investors to sell their interests should they need quick access to immediate cash. Moreover, investors are often charged exorbitant fees to participate in a TIC.

The bottom line: TIC ownership is not for everyone. TIC investments are especially not for investors who have little prior investing knowledge. As with any investment, it’s important to do your own due diligence. What is the background and history of the TIC sponsor? Are the tenants in the property stable and financially sound?  What are the vacancy rates in the surrounding area of the TIC?

All of this information should be disclosed in the offering memorandum of a TIC investment, as well as provided by the broker recommending the TIC. Too often, however, these material facts are misrepresented, and the investor pays the ultimate price.

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