TIC, NNN, Or DST – Ideal Replacement Option For 1031 Exchange

Origin of Tenants in Common

In England, during the 16th century, when it became a possibility for an individual to own land, Tenants in Common law was first originated. Tenants in Common law, as the name states, are the legal ownership of land. In other words, Tenants in Common means when two or more people own separate shares of the same real estate property. In the case of Tenants in Common, every person holds an undivided or distinct ownership interest, which provides them an equal right to utilize the feature in their way and even allow them to transfer their ownership interest. The mentioned benefits can be availed by getting into an agreement of Tenants in Common. TIC is beneficial in comparison to other real estate property options.

Basics of Tenants in Common

In simple terms, Tenancy in Common law means (wherein other contracts) you own a whole separate share of the property, for instance, building, number of apartments, so and so forth; instead in Tenants in Commons each TENANT in common owns a specific percentage of the value of the entire property. The Tenancy in Common agreement only enlists the names of each individual tenant along with their common ownership percentage. Because of the “transferring of ownership” factor in the contract of TIC, it becomes easy for each tenant even to buy more real estate property or directly sell any of his/her part of ownership to anyone.

An example of a real case scenario would make this concept a little easier to understand:

Marie and Jessica purchase a house together for an amount of $200,000. Marie pays $150,000, and Jessica pays $50,000. The women organize a tenant in common agreement in which Marie owns a 75 percent share, and Jessica owns a 25 percent share of the property. Although Jessica paid more for and maintains a larger share of the property, the women have equal freedom to use and enjoy the entire home.

Apart from Tenants in common, the other similar term is also popular in the market, which is Tenants by Entirety.

The minor difference in the concepts is – in the case of Tenants by the entirety, the spouses own the property together with the tenant. This way, the spouse is holding property as a single entity. The advantage of TBE or Tenants by Entirety is that when a creditor would make a call to collect the debt (which is owned by one’s spouse) cannot place a lie on it, which means the original tenant wouldn’t have to sell the property to pay the debt.

This makes it very clear that Tenancy by Entirety can only be formed by a married couple. Also, A tenant by the entirety cannot sell or transfer his interest in the property without the express signed consent of the other tenant, and if one tenant dies, his interest shifts to the surviving spouse, not to other beneficiaries or heirs of the deceased. This happens because a tenancy by the entirety is governed to the right of survivorship.

Right of Survivorship

Tenants in Common involve no Right of Survivorship, which is a significant factor. In simple words, no right of Survivorship in TIC laws means – if there is an agreement between two or more person and if one co-owner dies, his interest in the real estate property would automatically pass to his beneficiaries (he must have mentioned in the contract during the commencement), or it would pass to his beneficiaries according to the probate laws mentioned/attached with the TIC agreement.

For example,

John and Bill enjoy the home as joint tenants with right of survivorship. Upon John’s demise, Bill becomes the sole owner, regardless of what John may have stated in his will.

Common-Law Terms

There are some important legal terms and issue which are necessary for every individual who is interested in becoming a Tenant through Tenant-in-common law:

  • Beneficiary – A person designated in a will or trust as the assigned recipient of assets or property.
  • Decedent – A person who has deceased.
  • Deed – A written contract that conveys title to real estate from one individual to another.
  • Heir – An individual who has a claim to inherit the property and assets of another individual.
  • Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical area of power to enforce justice.
  • Partition – The act of distributing something into parts.
  • Real Property – Land and property added or fixed directly to the land, including buildings and structures.

For zero landlord responsibilities, invest in NNN properties – 

Your investment property could be generating good revenue. However, you also end up paying hefty money in operating expenses. If you opt for triple-net or NNN properties, you don’t need to pay operating expenses from your monthly income. A triple net lease requires the tenant to pay all operating expenses, including property taxes, insurance, and maintenance cost. 

A 1031 exchange is a complex process, and you must consult a 1031 expert or advisor before investing. 

TIC, NNN, Or DST – Ideal Replacement Option For 1031 Exchange

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