Can’t afford to invest in real estate by yourself? That doesn’t mean you can’t invest at all. You can still own property by entering into an arrangement known as a tenancy in common (TIC).

 

In a TIC, you’ll split ownership of a property with other investors. You’ll own a fractional share of the property, and as the property appreciates in value, your share will appreciate, too. If the property is a rental property, you’ll get a share of the rent each month. And you can sell your share, or leave it to your heirs, as you please.

 

But entering a TIC may not always be a good idea. Like any investment vehicle, a tenancy in common agreement has its pros and cons. Let’s take a closer look to see if a TIC is right for you.

Advantages of Investing Under a TIC Agreement

When you invest in a property under a TIC agreement, you’ll divide up shares of the property with the other tenants in common at the time the contract is made. You may agree to split up the property based on how much each of you is putting down, how much time each of you has to dedicate to maintaining the property, who will pay for upkeep, and other factors that you may work out amongst yourselves at the time of purchase.

 

Traditionally, people enter these types of agreements with people they know well and can get along with – family members, longtime business partners, and close friends. They can be a good way to get access to a piece of property you might not otherwise be able to afford. You can own any fraction of the property, but even if you only own, say, 30 percent of the property, you have full rights to use the entire thing (unless you’ve included a time sharing component in your agreement). You can also sell your fraction of the property to anyone you want, and have your own mortgage on your share of the property. If you die, your share of the property will be distributed to your heirs as outlined in your will or according to the intestacy laws of your state.

Drawbacks of Investing Under a TIC Agreement

However, just as you can sell your share of the property to anyone you want without consulting the other co-tenants, one of them could also sell their share of the property, and you might find that you can’t agree with this new co-tenant about what you all want to do with the property. You may want to spell out rights of first refusal or other co-tenancy rights that will allow you to have some say over who can buy a share in the property, because co-tenants can be added at any time, and not just at the time the agreement was originally made.

 

 

You may run into trouble if a co-tenant dies, because his or her heirs may not be interested in owning what may well be a miniscule share of the property. If one co-tenant wants to sell the property and collect his or her share of the proceeds, he or she can force the sale of the property in a partition action. You may have to buy the co-tenant out in order to retain the property.

 

Typically, unless co-tenants have separate mortgages on their shares, all co-tenants are responsible for the entire mortgage. If one tenant falls behind on payments, the others must make up the shortfall. If the co-tenants hold separate mortgages and one stops paying his or hers, the bank may foreclose on that co-tenant’s share of the property. That can leave the other co-tenants responsible for paying off the mortgage and pursuing the defaulting co-tenant in court to recoup their losses. You’ll also all be jointly responsible for paying any property taxes on the property, so don’t forget to consider that expense when you enter into a TIC agreement.

 

A tenancy in common (TIC) agreement can allow you to own part of a piece of property, which can help you get on the real estate ladder without having to cover all the investment costs yourself. Whether you’re trying to get into a home in a nicer neighborhood than you would otherwise be able to afford, you want a vacation home, or you’re just trying to invest in some rental properties, a TIC agreement could be for you. As long as you’re willing to accept the risks, real estate ownership as a tenant in common could help you build wealth for yours and your family’s future.