Property LLC or Tenancy in Common or Both?
Member since 2020 · 3 posts · 1 vote
I'm going for my first investment but I wanna do it with a few of my friends. I intend to buy an SFR property, and then create an LLC with shared ownership or set up having Tenancy in Common agreements after its bought .Does making an LLC help or having Tenancy in Common agreements make more sense ? Or can I have an Property LLC and issue Tenancy in Common agreements where each shareholder will have equal share in property as well as the LLC? TIC would help me in allowing shareholders to leave when they want . I believe the liabilities of both are different? Can I have a property LLC with TIC agreements for each shareholder and have all the liabilities be the responsibility of the LLC and not the TIC agreement holders?
"Can I have a property LLC with TIC agreements for each shareholder and have all the liabilities be the responsibility of the LLC and not the TIC agreement holders?"
I'm not following why you would want to do this or what you're trying to accomplish.
Generally if arms-length individuals are coming together to purchase, hold and operate rental real estate, an LLC taxed as a partnership or an LP are two legal entities that make a lot of sense. The operating agreement will get everyone on the same page.
Good question for your attorney and tax CPA.
"Can I have a property LLC with TIC agreements for each shareholder and have all the liabilities be the responsibility of the LLC and not the TIC agreement holders?"
I'm not following why you would want to do this or what you're trying to accomplish.
Generally if arms-length individuals are coming together to purchase, hold and operate rental real estate, an LLC taxed as a partnership or an LP are two legal entities that make a lot of sense. The operating agreement will get everyone on the same page.
Good question for your attorney and tax CPA.
@Eamonn McElroy
What I would like to accomplish is to reduce the liability risk that comes with TIC. The liability of lawsuits in a TIC makes every co owner responsible and can affect an owner not limited to that particular property. However in a Property LLC , the liabilities are limited to the LLC right ?
So if there is a way to combine both , then we can get the benefits of the TIC - shared ownership, fractional loans, rights to property income, resale of ownership share + benefits of the LLC - eliminate liability risk extending beyond the property.
Is this even possible ?
No, it's not possible to combine them, and furthermore, there's no need to.
A TIC is an undivided direct fractional interest in a piece of property.
When an LLC is formed and assets are contributed into the LLC, the owners of the LLC generally have an undivided fractional interest in the assets of the LLC by virtue of their ownership of the LLC units.
If this is a large investment, it may be worth your time to speak with an attorney who can help you make the decision and draft the operating agreement if that is the most advantageous path.
If your main goal is day-to-day simplicity and smooth financing, put the property in a manager-managed LLC. Lenders generally prefer one borrower, one bank account, and one set of books, and an operating agreement lets you spell out exactly who can sign leases, approve budgets, and make big decisions like refis or a sale. You can also build in timelines for approvals and clear remedies if someone won't fund a capital call, so operations don't get stuck.
If you and your partner care more about holding a recorded, deeded share—“you own 60%, I own 40%”—then a tenancy-in-common can work well, but only if the co-tenancy agreement is treated like the operating system for the deal. That agreement should say who manages the property, which decisions require both owners, how budgets and major cap-ex get approved, and what happens on a funding default. I always include a partition waiver (so no one can drag this into court) and a practical exit path: first a right of first refusal (ROFR), then a buy-sell if you can’t agree. Expect more lender diligence with TICs; many banks want carve-out guarantees from each co-owner and may limit how many people can be on title, so have that conversation early.
You don't actually have to choose one or the other. A very workable middle ground is to take title as TIC, but have each person own through their own single-member LLC. On the deed it reads "A Holdings LLC as to 55%; B Capital LLC as to 45%." You still run the asset under a tight co-tenancy agreement—appoint a manager, set decision thresholds, lock in capital-call remedies—but each party has entity-level liability protection and a clearly recorded share. Day to day, if you keep banking and reporting disciplined, it feels almost as clean as a single property LLC.
Whichever route you pick, make the governance boring in the best possible way. Pre-agree on what counts as a “major decision” (sale, refinance, long or large leases, cap-ex above $X), set response deadlines so no one can stall indefinitely, and write down exactly what happens if a partner doesn’t fund (temporary loans at a stated rate, dilution after a cure period, or—only as a last resort—a forced-sale trigger). Match insurance and title to the structure, too: named insureds should align with the vesting and any lender requirements, and your documents should say who controls insurance proceeds after a casualty and who decides whether to rebuild or sell.
Short version: want the lowest friction and the most lender-friendly setup? Use a manager-managed property LLC with a real operating agreement. Want each owner to hold a deeded slice and keep more individualized rights? Use a TIC, but treat the co-tenancy agreement like a full operating agreement with a partition waiver, ROFR, and a workable buy-sell. Want some of both? Title as TIC through your own single-member LLCs and operate under a tight co-tenancy agreement. If you share partner count, leverage target, and how you want control to work, I'm happy to sketch sample decision rights and buy-sell language that fits your deal.