'TIC' investment expands into secondary market.

Known in the industry as "tenancy-in-common" investment structures, "TICs" are currently finding more and more appeal among the investment community.

This method of investing is part of a growing trend among real estate investors who seek to shield themselves from ordinary capital gains by buying partial ownership interests in a property.

Although joint ventures and partnerships are similar in investment purpose, TIC investments are unique and different because of their added tax benefits.

TICs have recently become popular because of an Internal Revenue Service tax ruling two years ago. Derived from the concept surrounding the popular 1031 tax exchange, this ruling allowed investors to reinvest capital in fractional ownership to avoid capital gains taxes.

In the case of 1031 exchanges, real estate sellers can reinvest the earnings from a property sale into real estate of equal or greater value to avoid immediately paying taxes.

The TIC structure, however, has broader appeal since it attracts investors, which are not required to exchange a property for the purchase of a similar property.

In the face of low interest rates and a precarious stock market, those looking for higher returns are looking to invest in real estate and finding TICs an easy way to enter into the market. This convenient approach to investing prompted the emergence of REIT investment and has become an impetus for TIC growth.

Here is how a TIC works in practice: A pool of investors acquires an asset; then, both the property's debt and equity is split equally based on ownership shares.

Generally, these types of deals gamer annual returns of approximately 10%.

Advantages to the TIC approach, in addition to those tax-related, include diminished concern with the day-to-day operation of the building and a lower risk threshold due to the percentage ownership in the property. However, this partial ownership also leads to less control over the fate of the property, including decisions on leasing and management changes and the eventual sale of the asset because the decision requires full agreement among investors before taking action.

In many arrangements, such decisions can be made by a managing partner, thereby eliminating possibly contentious situations.

TICs are expected to continue to grow in popularity among the investment community, largely as an option for private investors.

Although not yet a fully matured investment market, the TIC structure, in particular, has a broad appeal for 1031 investors looking to defer income tax and enjoy substantial cash flow.