A fractional ownership, structured as a tenancy in common, allows for a sponsor to offer a group of accredited investors co-ownership of a property. A tenancy-in-common investment offers real estate investors significant advantages, including:

• Access to institutional-quality real estate which would be out of reach for individual investors;
• Freedom from the burdens of day-to-day management duties;
• A stabilized/steady monthly cash flow.

Real estate investors often look to tenancy-in-common offerings to satisfy a like-kind property exchange when utilizing IRS Code 1031 which allows for the deferment of capital gains tax when proceeds from an investment property sale are reinvested in a like-kind property.

Before investing in a TIC, investors should understand the avenues available to exit in an industry where a secondary market has not been fully developed.

Selling Your Fractional Ownership Interest to Your Fellow Investors

Who better to understand the value of the investment than fellow tenant-in-common owners of the property? Not only does this make the most sense from a standpoint of marketability, but also it is in fact often stipulated in the TIC agreement. The majority of TIC agreements require that, when exiting, fellow investors retain a right of first offer.

Offering A Fractional Ownership Through a Realtor or Securities Broker

Should fellow tenants in common not opt to purchase a co-owners interest, thus increasing their ownership of the property, investors may also turn to real estate brokers and/or securities brokers to locate a potential and willing buyer who is an accredited investor. The lender must approve the new buyer who would most likely be someone with similar equity and debt needs as the seller.

Initiating Sale of the Entire Property

TIC Investors may also initiate a sale of the entire property, in essence enlisting all tenants in common to exit the investment. In 2002, the Internal Revenue Service determined that there are four acts involving TICs that require unanimous consent from the owners: refinancing, property sale, management change and leasing involving a major portion of the property. Sponsors, including FORT Properties, may indicate in the offering that rather than unanimous consent, a super majority of 67% is required for any of these acts.

For more information on TIC 1031 exchange, please click here.