Sometimes, like in a personal residence, legal ownership is better as Joint Tenants. This requires both parties to sign certain documents, like when to sell, and when decisions are needed for the property. Another legal way to own real estate with others is in the form of Tenants in Common (TIC). This opens up options for many people to own investment-grade real estate, without needing to purchase the entire property.
When owning real estate through TICs, the ownership does not need to be split evenly. One investor could own 40%, another 5%, 15%, 30%, and 10%–with up to 35 owners. As a TIC co-owner, everyone can have a piece of the pie. Since the taxpayer holds a proportional deeded interest in the real estate, the investment qualifies under the like-kind rules of IRS Section 1031. For many, this can be a great solution to defer the taxes (capital gains, depreciation recapture, and NIIT) associated with selling an investment property. This real estate investment strategy can appeal to landlords who are tired of managing their residential real estate or managing a property manager.
There are many benefits to owning commercial real estate as a TIC. Owning quality commercial real estate at a lower expense, diversification, larger property access, passivity, and lower minimum investments. It provides a secure investment with a predictable rate of return. Through tenancy in common, Millcreek Commercial is able to make investing in commercial real estate easier than ever before and break down the barriers that once reserved investing for the wealthy.
TICs allow owning quality commercial real estate at a lower expense
Individuals tend to choose tenancy in common over full ownership due to its flexibility and affordability in comparison. For example, not every investor can afford a commercial building on a busy corner with an exceptional tenant and a NNN lease; however, with the right tenancy in common strategy, an investor is able to contribute their exact dollar amount and still have ownership in the property. The annual return (CAP rate) is the same whether the buyer purchases 5% or 40% of the building. This access allows for a much lower capital requirement, with the benefit of the same annual return as if the entire building were purchased.
Diversification
Investing through tenancy in common ownership provides a strength-in-numbers approach to your portfolio. This kind of portfolio diversification is especially attractive to investors looking for a risk mitigator that includes a variety of tenants, states, and building sizes. Note: having all your eggs in one basket can not only make sense but is also now more feasible than before.
Passivity
If you are looking for a hands-off investment opportunity, you are not alone. Many investors are tired of the daily operations of managing commercial properties. One major benefit of co-owning a Millcreek Commercial property is the passive income that it generates monthly—directly to your bank account. The major perk of owning assets with NNN leases is that the tenant now handles all the day-to-day expenses related to owning the property – property taxes, property insurance, and property maintenance.
Lower Minimum Investments
This is a benefit to all investors as access to larger properties, as mentioned above, becomes a reality. With low minimums, it requires less upfront cost to invest in commercial real estate while still reaping the benefits of a high-quality commercial real estate investment. A typical minimum investment when purchasing a whole property is a lot higher than a minimum investment through a TIC. Some commercial mortgage deposits require a 25%-40% down payment, depending on the level of risk.
If you are looking to invest in commercial real estate but aren’t sure where to start, a tenancy in common agreement is a great way to get your feet wet and explore real estate investments. Investing through a TIC is less of a commitment than if you were to invest in a whole building your first go-around. Our properties are triple-net, backed by a corporate guarantee, have a single-tenant, long-term lease, and are recession-resilient, giving you a stable and profitable opportunity to invest in commercial real estate. With any questions on TIC leases or their benefits, don’t hesitate to contact us!
