1031 EXCHANGE INVESTMENT STRATEGIES
Tenant-in-Common (TIC) Properties
Explore Tenant-in-Common (TIC) properties for your next 1031 exchange. Benefit from passive management, additional control, and potential liquidity during the holding period.
What is a TIC Property?
Tenant-in-Common (TIC) structures offer a powerful gateway for individual investors to participate in institutional-grade assets. This ownership model allows multiple investors to co-own a single property, providing the tax benefits of direct ownership with the scale of a multi-million dollar commercial acquisition.
A Tenant-in-Common (TIC) property is a form of co-ownership where two or more parties hold a separate, undivided fractional interest in the entire property. Unlike a partnership, each co-owner's name (or their legal entity) appears directly on the deed. This "undivided" interest means that while you own a specific percentage of the value, you share the right to the entire property with your fellow co-owners.
The IRS officially recognized this structure as a viable replacement property for 1031 exchanges in 2002 (Revenue Procedure 2002-22), provided the arrangement adheres to strict guidelines—most notably a limit of 35 co-owners.
Institutional Sponsorship and Management
While TICs can be formed by small groups of family or friends, the professional TIC market is driven by Institutional Sponsors. These firms act as the bridge between private capital and institutional assets.
Institutional sponsors are professional real estate firms that:
Source and Acquire: Identify high-value assets that are typically beyond the reach of individual investors.
Structure the Deal: Handle the legal and tax complexities to ensure compliance with IRS Revenue Procedure 2002-22.
Arrange Financing: Secure non-recourse, institutional-grade debt.
Asset Management: Oversee the third-party property managers, execute the business plan (e.g., renovations or lease-ups), and handle financial reporting.
In an institutional TIC, investors benefit from the sponsor’s expertise while retaining voting rights on major decisions, such as selling the property or refinancing the loan.
Property Types and Locations
TIC properties are almost exclusively institutional-grade commercial real estate. Sponsors focus on assets that provide stable cash flow and potential for appreciation.
Common Property Types: Class-A Multi-family apartment complexes, grocery-anchored retail centers, medical office buildings, and industrial/flex warehouses.
Strategic Locations: Investments are typically found in "primary" and "secondary" markets across the United States—specifically in areas with strong employment growth, diversified economies, and favorable landlord-tenant laws (e.g., the Sunbelt, the Pacific Northwest, and suburban corridors of major metros).
An In-Depth Look at TICs
TICs and the 1031 Exchange
The primary driver for the TIC market is the Section 1031 Exchange. Because a TIC interest is considered real property (rather than a security or partnership interest), it qualifies as "like-kind" to other real estate.
A common question is: Can I 1031 out of a TIC? The answer is yes. Because you hold direct title to your fractional interest, you have the flexibility to:
Participate in a unanimous sale of the entire asset and roll your proceeds into a new 1031 exchange (either into another TIC, a DST, or a whole property).
Sell your individual interest independently (though this is more difficult and subject to the terms of the TIC Agreement).
TIC vs. DST: Which is Right for You?
The Delaware Statutory Trust (DST) has become the more popular alternative to the TIC in recent years, but each has its place.
When to choose a TIC
You have a large amount of equity to place and want a more significant "say" in the property’s future.
You prefer having your name directly on the deed.
You are comfortable with the complexity of lender underwriting for individual co-owners.
When to choose a DST
You have a tight 1031 deadline (the 45-day window) and need a certain, fast close.
You want maximum diversification by splitting your equity into smaller amounts across several properties.
You prefer a 100% hands-off experience where a professional trustee handles all decisions.
Key 721 DST Information
Designed for investors who want the monthly or quarterly cash flow of real estate without the headaches of day-to-day management ("Tenants, Toilets, and Trash").
Unlike DSTs, TIC owners retain significant rights, including the requirement for unanimous consent for major decisions like selling or refinancing the asset.
Often utilizes non-recourse debt, meaning your personal assets are generally protected in the event of a loan default.
IRS guidelines limit these structures to a maximum of 35 co-owners to maintain the tax-advantaged status.
Explore Benefits of TIC Properties
Direct Title Ownership
Your name is on the deed, providing a level of security and control not found in REITs or funds.
Diversification
Instead of putting all capital into one small property, investors can spread equity across multiple TICs in different states and sectors.
Depreciation Benefits
As a direct owner, you receive your pro-rata share of depreciation and interest deductions to offset income.
Institutional Quality
Access to $20M+ assets that feature high-quality tenants and professional management.
Passive Income
Quarterly or monthly distributions of rental income without the "Three T’s" (Tenants, Toilets, and Trash).
Non-Recourse Financing
Most institutional TICs utilize non-recourse debt, meaning the lender’s only recourse in a default is the property itself, protecting the investor's personal assets.
1031 Tax Deferral
Seamlessly transition from a managed property (like a rental house) into a passive, professionally managed TIC.
Voting Rights
Unlike other fractional structures, TIC owners must unanimously approve "material" decisions like selling or refinancing.
Explore Available TIC Deals
Access available Tenant-in-Common (TIC) investment opportunities from Baker 1031 Investments.