Real estate investing is one of the more broad types of investing that investors have available to them. Investors understand the potential importance of a diverse portfolio, and real estate can help provide that. One such example is found in investing in tenants-in-common (TIC) properties. It's important to understand what these properties are and how they can benefit California real estate investors that are interested in further diversifying their investment portfolio.
What Is a Tenants-in-Common Property?
By its very definition, a TIC property is a piece of property that is owned by two or more individuals. The ownership stakes in the property can be set up in a variety of ways. For instance, if there are only two owners who both put up an equal share of the money required to purchase the property, the two owners would both own a 50% share of the property. Should one owner put up more money than the other, he or she would own more of the property. If there are three or more owners, the ownership stakes may be divided up any number of ways based on how much money each owner provided for the purchase of the property.
Potential Benefits of Investing in a Tenants-in-Common Property
Real estate investors in California who opt to invest in TICs can put themselves in a position to potentially reap several benefits. One of the appealing aspects of investing in a TIC is the fact that you aren’t responsible for putting up such a large sum of money up front. In a state like California, where property costs are generally high, purchasing a piece of property on your own can be incredibly expensive. When you purchase shares of a tenants-in-common property, you can put up a much smaller amount of money, while still earning some percentage of any profits generated by the property later on.
Another benefit of investing in TICs in California is found in the fact that you can do what you want to with your share of the property. For instance, if you find another investment opportunity and need to liquidate something to generate cash, you can either mortgage your piece of the TIC property, or you can sell your portion of ownership to one of the other owners or another investor at your discretion. You are in control of your investment.
Finally, the ability to claim property depreciation is a major benefit for investors who look for opportunities to offset some of their capital gains. Obviously, a single investor can’t claim all of a property’s depreciation, but you can claim a percentage of the depreciation based on your percentage of ownership.
We believe real estate investors should understand the importance of finding different types of investment opportunities so they can pursue ways to further diversify their portfolios. As is always the case, there are risks associated with investing in any type of real estate. However, the potential benefits of investing in this type of investment class help make it a potentially appealing investment option. The ability to purchase a share of property while also earning the right to claim some of the tax benefits associated with property ownership can make tenancy in common investing a useful tool for investors of all experience levels.
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. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. 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. Cash flow or income are not guaranteed. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
