If you are buying real estate with one or more other people, you may structure the ownership as either Tenants-In-Common (TIC) or as a joint tenancy. Small groups purchasing real estate frequently employ these ownership structures, and the arrangements are often confused with each other due to the similarity in names. Therefore, let's quickly review the similarities and differences between these two ownership models.
Joint tenancy is an equal partnership.
In a joint tenancy, the owners are equal partners, and the partners have the right of survivorship. That right means that if one owner dies, the others inherit their share. If there are more than two owners in the joint tenancy, the surviving owners will equally divide the percentage of the deceased partner. Each person owns an equal share and is responsible for paying the mortgage (if any) and other obligations. In addition, each owner is entitled to a standard portion of any income.
It is common for a couple to own property together in joint tenancy, simplifying the transfer when one spouse dies. However, joint tenancy can complicate the distribution of property if a couple dissolves the relationship.
TIC arrangements offer variable ownership percentages.
In contrast to the equal property division with a joint tenancy, a Tenancy-In-Common can be held in different ownership percentages. For example, a group of five people can have a property as tenants-in-common, but one might own half, while the other four each own 12.5 percent. The group distributes any income from the property (such as rental income) or disposition proceeds according to ownership share. However, each owner has an undivided fractional interest in the property, no matter what percentage they own. Also, with a TIC structure, each owner can bequeath their share to an heir of their choosing or sell their portion at will during their lifetime.
How can a joint tenant sever the arrangement?
In most cases, joint tenancies require the unanimous agreement of the owners to dispose of a property. However, when a couple divorces, they typically terminate a joint tenancy as part of the dissolution process. In fact, a married couple may also decide to alter the tenancy arrangement to gain the ability to leave their share to an heir that is not the joint tenant.
For other groups, if one party wants out, the entire ownership group is affected. For example, suppose the parties can't agree to dissolve the joint tenancy. In that case, one may even petition a court for a forced sale or for the court to divide the property into separate ownership interests. However, it’s more likely that the group would agree to change the agreement to release the individual seeking the disposition and reformulate the group.
Any owner in the joint tenancy can transfer their share to another person outside the ownership group. However, that action will terminate the joint tenancy. Instead, the new owner will join in a tenancy-in-common capacity.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure.
Because they are private placements, TICs are illiquid securities. There is no secondary market for TIC investments. Moreover, the form of ownership may require unanimous consent to sell a TIC interests.
Like any investment in real estate, if a TIC property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions.
TIC properties employ professional asset and property management, so while TIC co-owners vote on major issues, they do not have direct say over day-to-day property management situations.
