Benefits & Risks of a TIC

Recently our sister company introduced an innovative new way to join the Tenancy in Common real estate investment movement. With self-storage TICs, individual owners can join the lucrative world of self-storage facility ownership – without the individual ownership price tag.

In this blog we introduced you to the basics of Tenancies in Common. Because there are always pros and cons to every type of investment, today I want to briefly discuss the benefits and risks of this type of real estate investment opportunity.

Benefits

One of the advantage of Tenancy In Common ownership of investment property is that the individual investors each maintain the ability to have a say in the day-to-day operation of the property, including when and under what terms to eventually sell the investment. Contrast this to Delaware Statutory Trust ownership where individual investors cede this authority to a third-party.

Also, since buyers are able to pool their resources in a #TIC, this gives the TIC collective much more buying power than an individual investor may have. This opens up a wider selection of potential investment properties, with greater growth potential.

Finally, in cases where the TIC is offered as a security, the TIC investor also enjoys the benefits of securitized real estate.

Risks

Although very popular, Tenancy In Common ownership presents a unique set of challenges that any investor should thoroughly consider beforehand. Beyond the typical risks associated with investing in real estate, when ownership involves multiple investors there is always the risk of conflict or disagreement among the owner pool.

Any major decision requires the unanimous approval of all owners, which can be problematic if fast decisions are required. While most TICs contain a buy-out provision for dissenting owners, it is usually not a fast or easy process. The time it takes to resolve disagreements among owners can often cause the TIC to miss out on lucrative selling opportunities.

Likewise, if the TIC property is mortgaged, there is also the risk that a change in an individual owner’s financial status may adversely impact any future refinancing. Unlike Delaware Statutory Trusts, when a TIC seeks financing, the lender will scrutinize the individual credit of each TIC investor.

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