Investing in Tenant-in-Common Properties

When looking into tenant-in-common (TIC) property, you've no doubt heard the term "due diligence" related to the sponsor of the TIC.

It's important that you know exactly what this term means as you're investigating TIC property investments.

The actual definition of due diligence is the action of one party not to harm another. In the case of TIC property, this means that the TIC sponsor must do as much research as possible and present it to the investor for consideration. This ensures that the investor has a great deal of information about the property before taking co-ownership of it.

This really helps when you're purchasing a TIC through a 1031 exchange. Because you'll have a very limited time to look at a lot of properties, it helps that the TIC sponsor has done all the legwork for you. You'll have to review it, but you won't have to run down every individual piece of information yourself.

There are many factors that will be presented to you as part of due diligence. For example, you'll be given the profit-and-loss statements for the property as well as information about the demographics that affect it. Due diligence packages also include information on the tenants of the building and rental histories.

The due diligence information is presented to the investors, but it's also shown to the lenders to help secure financing at premium rates. This helps to guarantee that you'll receive the best financing possible for the purchase of co-ownership in a TIC property.

Once you've reviewed the due diligence information of a tenant-in-common (TIC) property, you may decide you're ready to invest. At this point you'll complete the subscription process with the TIC sponsor.

You'll be asked to complete a subscription questionnaire that requires information about your finances.

The subscription process allows the sponsor to get information about your finances and your ability to be a solid, contributing member of the co-ownership agreement.

Most TIC sponsors ask for the same type of information for this process. For example, they'll want your personal information and banking information. They'll also want to know if you're taking ownership as an individual or an entity. If you're taking ownership as an entity, you'll have to produce paperwork that covers it beyond your personal financial information.

You'll be asked to provide copies of a personal financial statement. You may also be asked to provide your IRS tax statements for the previous two years. You'll also be asked to complete a document authorizing the release of your credit information.

You will be asked to verify any bankruptcy information and inform them of any legal matters that may be pending. Your registered representative will have to complete a broker dealer page as well.

Finally, you'll have to provide an escrow check for deposit. This deposit is a show of your commitment to the property and can be in an amount from $2500-$10,000 depending on the property. Sometimes the deposit can be refunded if you opt out within a specific amount of time. However, you won't have a long window of opportunity to be refunded.