Home prices have become dramatically less affordable in recent years, prompting greater demand for alternative forms of property ownership, including tenancy in common (TICs), condos, and co-operatives (co-ops).
But what exactly are TICs, condos, and co-ops?
How does each form of ownership work?
And what do these alternative ownerships mean for real estate investors?
Let’s explore TIC vs. condo vs. co-op, starting with the basics of each.
What is Tenancy in Common and How Does It Work?
Tenancy in common is a form of fractional ownership in which multiple parties share “undivided” legal rights to a single property. This means the co-owners all own a percentage of the property, but the percentage doesn’t tie directly to specific portions of the physical property.
TIC does not require all equal ownership splits. In a two-party TIC, for example, the owners could go 50/50, but they don’t have to. One party could own 70%, while the other owns 30%, if they choose. With TIC, there is a single title for the property, which lists each tenant in common, along with their share of ownership.
Each owner retains the right to sell, bequeath, or borrow against their share of the property. However, TIC agreements typically assign “joint-and-several liability,” meaning that each individual owner may be responsible for the full amount of any debt or expenses associated with the property. For example, if one co-owner refuses to pay their portion of the property tax bill, all owners may be held responsible for the missing amount.
The joint-and-several liability makes trust and cooperation between owners extremely important in a TIC arrangement.
Examples of Tenancy in Common
One common use of TIC is when family members or business partners invest together in a rental property. All owners share ownership over the entire property (as opposed to assigning a specific section of the property to each owner).
It’s also possible to buy into a multi-family building as a TIC, with the intention of having each owner live in their own unit. In fact, this strategy is growing in popularity in high-priced markets like San Francisco, Los Angeles, and New York because the fractional ownership with an undivided interest makes the property more affordable. In this case, the title would still list all owners with their undivided ownership share, but the TIC agreement would assign each owner the right to reside in a specific unit. So, an individual owner wouldn’t technically own just their unit. They have an ownership share in the entire property with the right to reside in a specific unit.
What is a Condo and How Does It Work?
A condo (condominium) is a form of ownership in which individuals can purchase specific units of a multi-family property, along with a shared ownership interest in the common areas (including hallways between units, amenities, and property grounds). This is currently the most popular form of shared ownership in buildings with multiple units.
While TIC represents an undivided interest in the entire property, condos represent a divided interest in individual units with an undivided interest in common areas.
Everyone who owns a unit in a given condo complex typically becomes a member of the condo association or HOA (homeowner’s association). They pay dues to maintain the common areas and choose members to serve on the association’s board. The board’s job is to budget for all expenses for common areas (pool maintenance, landscaping, utilities, periodic roof replacements, etc.) and generally make sure the entire condo complex is well-maintained. This helps preserve property values for individual owners.
It is often less expensive to buy a condo than to buy a single-family home. But this isn’t always the case. Condos with high-value amenities (like fitness centers, pools, and game rooms) could be more expensive than comparable local single-family homes.
Condos are often more expensive than TICs because many buyers prefer the divided interest of owning their specific unit to the undivided interest arrangement of TICs.
What is A Co-Op and How Does It Work?
A co-op (co-operative) is a form of ownership in which buyers purchase shares in the company that owns the property, in exchange for the right to occupy a specific unit of that property. So residents don’t own the real estate itself. The corporation, in which they own shares, is the building owner.
This is most commonly seen in New York City, where many older buildings were converted to co-ops in the 1900s before condos became the preferred ownership model for multi-family buildings. Building residents wanted more control over the property’s expenses, maintenance, and resident vetting process, so they joined forces to create corporations to purchase and hold the entire building.
Co-ops can be very particular about accepting new owners into the building. There is usually an extensive interview process, including a thorough financial review of potential candidates.
Side by Side Comparison: Tenancy in Common (TIC) vs. Condo vs. Co-op
What TICs, Condos, and Co-Ops Mean for Real Estate Investors
As with any real estate investing strategy, it is important to think through some nuts and bolts before investing in TICs, condos, or co-ops.
TICs: A Faster, Cheaper Path to Market
For real estate developers and investors, TICs offer a way to sell individual interests in a building without going through the potentially long and expensive process of subdividing a single parcel into multiple parcels so each unit can be individually taxed and transferred.
Some local zoning boards and mapping offices impose strict regulations and long waitlists for condo maps, making TICs a practical workaround. While TIC shares typically sell for less than condo units, developers benefit from lower upfront costs, fewer regulatory hurdles, and faster sales timelines, which can make the project more liquid and reduce holding costs.
Condos: The Highest Sales Prices and Broadest Buyer Pool
Selling units as condos usually yields the highest per-unit prices. This is because buyers are more familiar with the condo ownership structure, so there is greater buyer demand for this form of ownership.
However, condo development and condo conversion require formal subdivision mapping, compliance with local and state condo laws, and rigorous building/retrofitting standards. Depending on local market conditions, this added burden may or may not pay off with faster sales and higher sales prices.
Co-ops: A Niche Strategy for Specific Markets
Developers and building owners rarely choose to sell co-op-style today, except in markets (like parts of NYC), where the model is already well-established and buyers are comfortable with the concept. Co-ops can be simpler to create than condos because the developer/owner is selling shares in a corporation rather than subdividing real estate, but co-op boards and resale restrictions typically reduce future marketability.
The Case for More Investment in TIC Value-Adds
Taking an existing multi-family building, renovating it, and reselling it as a TIC is gaining traction in certain high-value markets (like San Francisco and Los Angeles) because of the benefits it poses compared to selling as condos or as a co-op.
TIC value-adds provide many of the same advantages for developers and investors as traditional property value-add projects, including:
- Forced appreciation. As value-add real estate investments, well-planned multi-family renovations offer strong value growth potential. The after-repair value (ARV) typically far exceeds the purchase price of the property plus the cost of labor and materials to renovate.
- Tax breaks. There are many different tax benefits from real estate investing. For multi-family valu-adds, specifically, one key benefit is that proceeds from the sale of the completed building are taxed at the lower long-term capital gains tax rate, rather than the higher earned income rate (as long as the property is held for at least one year).
- Lower cost per unit. Compared to the renovation of single-family homes, multi-family projects are more cost-effective on a per-unit basis, thanks to shared walls, roofs, and grounds.
In addition to the benefits of all multi-family value-adds, multi-family buildings that are renovated to sell as a TIC enjoy a few additional perks, such as:
- High demand in pricey markets. Buyers in high-cost markets are actively seeking more affordable housing options, including TICs. Los Angeles, with its perpetual housing shortage, is a prime example of a market suited to support an increase in TIC development.
- Higher sales prices. Selling a multi-family building through a TIC structure can command sales prices of 10-20% more than selling the building to a single buyer-investor as a rental property.
- Contributing to affordable housing inventory. Increasing the availability of accessible housing options for those who wish to become homeowners provides intrinsic value for socially-conscious developers and investors.
How to Invest in TIC Value-Adds (The Stress-Free Way)
If you can see the value in TIC value-adds, but you’re not in a position to manage the finances or renovation of a multi-unit property alone, consider investing in a TIC project through real estate syndication.
Syndication pools capital from multiple investors, allowing you to access unique investment opportunities without taking on the full burden of financing or overseeing the project yourself. With syndication, the responsibility for acquisition, renovation, operations, and the eventual resale lies with the project sponsor. The sponsor takes care of every detail, allowing you to reap the benefits of TIC investing without prior experience or investing your own time in the deal.
Gatsby Investment is proud to present pre-vetted multi-family value-add TIC deals to accredited investors! With our innovative investment model, you can invest as little as $25k to join a multi-million dollar project. We scout multi-family buildings all over Los Angeles, looking for those with the greatest potential for added value and successful resale under the TIC ownership structure.
Explore all of Gatsby’s available investment opportunities today, and be sure to create a free account to be notified via email as new deals are added!
Don’t stress about the details of TIC, condo, and co-op. Invest with seasoned real estate experts who understand the nuances of different ownership and investment models and know how to leverage those differences for higher investor return potential!