How to Buy a Tenancy-in-Common Unit

This old English common law arrangement applied to a group of non-spouses who owned and used the same property. These days, tenancy-in-common (TIC) is a complex legal arrangement where multiple owners buy a building together which has not been split into condos. If you think that means a special set of considerations, you couldn't be more right.

Difficulty: Challenging

Instructions

1. Explore the benefits of this unique arrangement. Individual owners have the ability to sell. Also, if the TIC is an income-producing property, an individual owner can do a tax-deferred exchange into another "like-kind" income-producing property and avoid paying capital gains.

2. Take a hard look what's involved. You have to identify a suitable property, find a group of people you get along with well enough to be successful co-owners, and deal with a lot of paperwork.

3. Understand the three methods of getting into a TIC. *Buy into an existing partnership. *Form a TIC from the outset. *Convert a partnership or limited liability corporation (LLC) into a TIC.

4. Take inventory of each potential co-owner's finances. Since all TIC members share the debt and will be listed on the mortgage, everyone will need to be prequalified.

5. Locate a property. In some cases, TICs in search of additional owners advertise an open unit in the local newspaper or with a real estate agent. Conversely, a group could look together for a suitable property to buy.

6. Split ownership according to each party's wishes. Say you and someone else want to buy a home or building together--that doesn't mean that the property or ownership has to be divided into equal shares. Or, you may want to buy into a TIC property for investment purposes. Many options are acceptable so long as they're clearly stated in all documentation.

7. Have an attorney draw up papers outlining the TIC agreement (even if your state doesn't require it) which clearly stipulates varying percentages of ownership, defines common and private areas and shared expenses and establishes a mutually agreed-upon course of action if a co-owner fails to abide by the agreement.

8. Investigate all possible mechanisms for breaking up a TIC. One owner may simply agree to sell his or her share to another. Partners can also file for a court action for partition. The court may order that the property be sold and each owner receive a proportionate share of the money. Another vehicle for dissolution is to convert the building into condominiums, with each resident owning his or her own unit (see How to Buy a Condominium).

Tips & Warnings

• Have your attorney draft or review tenancy-in-common papers to prevent nasty misunderstandings down the line. Even if you use a sample TIC agreement from a Web site, verify that nothing important has been left out inadvertently.
• Bear in mind that a partner upon his or her death can transfer ownership to anyone they choose. None of the other partners has any say in the choice. It's something to consider if you get along with a partner fine but know you won't work well with his or her heirs.