Tenants-in-Common (TIC) 1031 Investments

How TIC Ownership Works

In a TIC structure, each investor receives a recorded deed for an undivided fractional interest in the property, for example a 12 percent share. Unlike a DST, where a trust holds title, TIC co-owners hold title directly. They share income and expenses in proportion to their interests and typically sign a co-ownership and management agreement that governs decisions, distributions, and how the property is operated and eventually sold.

"Undivided" is the key word. Each owner holds a percentage of the whole property rather than a specific physical piece of it. A 12 percent TIC owner does not own the northeast corner of the building; they own 12 percent of all of it, sharing rents and costs in that proportion. Each owner can generally sell, gift, or bequeath their fractional interest, and each receives their own deed and reports their share of income and depreciation on their own tax return.

TICs and the 1031 Exchange

The IRS addressed fractional TIC ownership in Revenue Procedure 2002-22, which set out conditions under which a TIC interest is treated as a direct real property interest rather than a partnership. When those conditions are met, a TIC interest qualifies as 1031 like-kind replacement property. That guidance opened the door for syndicated TIC deals, letting individual investors pool capital to buy institutional properties while preserving each owner's separate 1031 status.

Among the conditions the guidance describes are that there be no more than 35 co-owners, that the co-owners not file a partnership tax return or hold themselves out as a partnership, that certain major decisions require unanimous co-owner approval, and that each owner have the right to transfer their interest. These conditions are what keep a TIC on the "direct ownership" side of the line so it qualifies for 1031 treatment rather than being recharacterized as an ineligible partnership interest.

Direct Title and Financing Nuances

Because TIC owners hold direct title, they typically appear on the loan and have more direct say than DST beneficiaries. That direct ownership is the main appeal for investors who want their name on the deed. The flip side is complexity: lenders may require each co-owner to qualify, and the Revenue Procedure 2002-22 conditions historically limited TICs to 35 or fewer investors, with unanimous approval often required for major decisions like a sale or refinance.

Financing a TIC can be intricate. Because there are multiple owners on one property, lenders often require a single blanket loan with each co-owner as a borrower, and the co-ownership agreement must spell out how debt service, reserves, and a potential default are handled. The unanimous-approval requirement for major actions, intended to preserve 1031 status, is also the source of the structure's biggest practical headache: one holdout owner can stall a sale, a refinance, or a needed capital decision.

TIC Versus DST

DSTs largely displaced TICs because they are simpler and more flexible. A DST allows many more investors, far lower minimums, and a single trustee who handles decisions, avoiding the unanimous-consent gridlock that can stall a TIC. TICs, by contrast, offer direct title and more owner control. Many sponsors now favor DSTs for passive fractional deals, while TICs persist where direct ownership, certain financing structures, or a future development plan make them preferable.

Some practical contrasts:

• ›Number of investors: TICs are capped at 35; DSTs can have hundreds.
• ›Minimums: TICs often require larger minimums because of the small owner cap; DSTs can start around $25,000 to $100,000.
• ›Decisions: TICs frequently need unanimous consent; a DST trustee acts alone within the trust's fixed plan.
• ›Title: TIC owners are on the deed and the loan; DST investors hold beneficial interests and are not on the loan.
• ›Flexibility: A TIC can sometimes pursue plans a DST cannot, since a DST is frozen by the "seven deadly sins."

When a TIC Still Makes Sense

Despite the rise of DSTs, TICs persist for specific reasons. An investor who wants their name on the deed and a direct say in operations may prefer a TIC. Certain value-add or development business plans that a DST cannot legally pursue, because of the restrictions on new capital, refinancing, and improvements, can be structured as a TIC instead. Some lenders or 1031 timing situations also favor the TIC form. The structure is not obsolete; it is simply a more specialized tool than it once was.

Trade-Offs and Diligence

TIC investments carry the same illiquidity, sponsor, and market risks as other syndicated real estate, plus governance complexity from shared decision-making among co-owners. The requirement for owner cooperation can complicate an exit if co-owners disagree. As with DSTs, these are typically securities or real estate offerings suited to accredited investors. Review the co-ownership agreement and offering documents closely, and consult your CPA and attorney before exchanging into a TIC.

Pay particular attention to the co-ownership and management agreement, since it governs how votes are taken, how disputes are resolved, what happens if a co-owner cannot fund their share of an expense, and how and when the property may be sold. Because your outcome depends not only on the property and sponsor but on the cooperation of strangers who co-own the asset with you, the governance terms deserve as much scrutiny as the real estate itself. Consult your CPA and attorney before exchanging into a TIC.

TIC Financing and Lender Friction

Financing is often the hardest part of a TIC deal, and it is a major reason DSTs displaced TICs for passive offerings. Because Revenue Procedure 2002-22 caps a TIC at 35 co-owners and discourages the group from acting like a partnership, lenders cannot simply underwrite a single borrowing entity. Instead, many TIC loans are structured as one blanket mortgage secured by the whole property, with every co-owner named as a borrower. That creates real friction: a lender may want to review and approve each investor's creditworthiness, and some require each co-owner to sign or guarantee aspects of the loan. The co-ownership agreement must spell out how debt service, reserves, and a potential default are shared, because a single co-owner's financial trouble can jeopardize the loan for everyone. Lenders also frequently demand a single-purpose entity wrapper or specific provisions limiting any one owner's ability to encumber their interest. Loan assumption on a later sale can be cumbersome too, since the buyer must satisfy both the lender and the remaining co-owners. For exchangers racing a 180-day clock, this lender friction can slow a closing in ways a pre-financed DST avoids entirely.

TIC Versus DST: Decision Factors

Choosing between a TIC and a DST usually comes down to how much control and flexibility you need versus how much simplicity and speed you value. Favor a TIC when you want your name directly on the deed and the loan, want a genuine vote on major decisions, or need a business plan, such as value-add work, refinancing, or future development, that the DST's "seven deadly sins" would prohibit. Favor a DST when you want a truly passive, hands-off investment, need to close fast against a deadline, want lower minimums, or prefer to avoid the unanimous-consent gridlock that can paralyze a TIC when even one co-owner objects to a sale or refinance. Practical factors that tip the decision include the number of investors (a TIC is capped at 35; a DST can have hundreds), the financing approach (individual qualification on a TIC versus non-recourse debt baked into a DST), the degree of control you want, and your tolerance for governance complexity. Neither is inherently better; the right answer depends on your goals, timeline, and the specific offering. Model both paths and consult your CPA and attorney before exchanging.