Real Estate

The advantages of ICT over LLCs

“Isn’t ICT the same as LLC”? “Don’t they offer the same benefits”? “Why Should One Choose a TIC Over an LLC Agreement”? If you are reading this article, I am sure that you must have asked yourself these questions over and over again. Well I’m here to help. Let me answer all your questions and show you why TIC is a much better option than traditional LLCs.

Before going any further, it is prudent to first differentiate between the two terms we will be dealing with i.e. gaining a clear understanding of what is a TIC and what is an LLC. A TIC, or tenancy in common, is an agreement that allows an investor to purchase a property that has multiple owners while keeping all the rights that a single owner would have. On the other hand, a Limited Liability Company (LLC) or other limited partnerships comprised of one or more general partners who perform the duties of an ordinary partner, while one or more special partners are responsible for paying off the company’s debt beyond of the amount of money they contributed as capital.

There is no denying that LLCs and other similar entities provide a variety of management benefits and liability protection that direct fractional ownership arrangements such as TICs cannot provide. So why should one choose a TIC over an LLC?

You see the way LLCs make life miserable for an investor when the arrangement is used by co-ownership groups that occupy some, if not all, of the co-owned property. In such cases, Limited Liability Companies are simply not enough because the legal and tax disadvantages created by these entities so far outweigh the benefits that they make the entire venture seem worthless.

By contrast, an ICT deal has a lot to offer investors. For starters, an investor is blessed with a great deal of purchasing power. Small investors, who may not even have been able to dream of a certain project because the costs were too high, can easily become part of the project because they can pool their resources and make large purchases together. In addition, the fact that the ICT is organized by a team of real estate professionals, known as a ‘Sponsor’, enables the professional management power of the project for investors. The advantages of having this Sponsor are multiple. First of all, decision making becomes much more effective than anything possible under an LLC agreement.

In addition, the TIC owner is guaranteed a stable monthly income. Some might argue that this income is the same as the cash flow received under a single tenant agreement. However, these people forget that the tenant is still the responsibility of the owner in an LLC agreement, whereas in the case of TICs, the sponsor establishes the agreement and therefore provides highly reliable tenants. Also, because these TIC sponsors deal with many properties, they can be very influential when dealing with lenders. Therefore, the Sponsor could achieve very favorable financial arrangements for the TIC and its owners.

In addition, since ICTs have low initial costs, they allow investors to diversify and reduce their risks by purchasing two or more types of properties. This is substantially above and beyond anything LLCs can offer, as LLCs and other similar entities can require large minimum cash injections that can tie up too much of an investor’s money, leaving them at the mercy of a single project.

So, all said and done, if you ever have to choose between a TIC and LLC agreement, the decision should be simple and straightforward; IT Rule!

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