“Aren’t TICs the same as LLCs”? “Don’t they both offer the same benefits”? “Why should one choose a TIC over an LLC arrangement”? If you are reading this article, I am sure you must have asked yourself these questions time and again. Well, I’m here to help. Allow me to answer all your questions and show you why TICs are a much better option than the traditional LLCs.
Before we go forward, it is prudent to first differentiate the two terms we shall be dealing with, i.e. get a clear understanding of what a TIC is and what a LLC is. A TIC, or a Tenancy in Common, is an arrangement which allows an investor to purchase a property which has multiple owners while simultaneously maintaining all the rights a sole owner would have. On the other hand, a Limited Liability Company (LLC) or other limited partnerships comprise of one or more general partners who serve the functions of an ordinary partner while one or more special partners are liable to pay for the company’s debt beyond the amount of money they contributed as capital.
There is no denying that the LLCs and other such entities provide a variety of management and liability protection benefits which direct-fractional ownership arrangements such as TICs can’t provide. So why then, should one choose a TIC over an LLC?
You see the way LLCs make life miserable for an investor is when the arrangement is used by co-ownership groups occupying some, if not all, of the co-owned property. In such cases, Limited Liability Companies just don’t cut it because the legal and tax disadvantages created by these entities outweigh the benefits so much that they make the whole venture seem futile.
On the contrary, a TIC arrangement has a lot to offer for investors. For starters, an investor is blessed with a great amount of buying power. Small investors, who might not have been able to even dream about a certain project because the costs were too high, can find themselves easily a part of the project because they are able to pool-in their resources and make large purchases together. Moreover, the fact that TICs are arranged by a team of real estate professionals, known as a ‘Sponsor’, enables the power of professional management of the project for the investors. The advantages of having this Sponsor are multi-fold. Firstly, decision making becomes far more effective than anything possible under an LLC arrangement.
Furthermore, a TIC owner is guaranteed a stable monthly income. Some might argue that this income is the same as the cash flow received under a single-tenant arrangement. However, these people forget that the tenant remains the responsibility of the owner in an LLC arrangement, while in the case of TICs, the Sponsor sets up the arrangement and thus provides highly-reliable tenants. Additionally, as these TIC Sponsors deal with many properties, they are able to command great leverage when dealing with lenders. Hence, the Sponsor might be able to attain very favorable financial arrangements for the TIC and its owners.
Moreover, as TICs have little upfront costs, they allow investors to diversify and reduce their risks by purchasing two or more property types. This is substantially above and beyond anything that LLCs can offer as LLCs and other such entities may require large minimum cash injections which may tie-up too much of an investor’s money, thus leaving him/her at the mercy of just one project.
So all said and done, if you ever have to choose between a TIC and an LLC arrangement, the decision should be simple and straightforward; TICs rule!
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