The advantages of ICT over LLCs

“Isn’t ICT the same as LLCs”? “Don’t they offer the same benefits”? “Why should one choose a TIC instead of an LLC agreement”? If you are reading this article, I am sure 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 proceeding, it is wise to first differentiate the two terms we will be dealing with, i.e. gain 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 made up of one or more general partners who perform the duties of an ordinary partner, while one or more special partners are responsible for paying 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 outright fractional ownership arrangements like 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-ownership 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 company seem useless.

By contrast, an ICT deal has much to offer investors. To begin with, an investor is blessed with a large amount of purchasing power. Small investors, who may not have even 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 big purchases together. Furthermore, the fact that TIC is organized by a team of real estate professionals, known as ‘Sponsor’, enables the power of professional project management 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 sole tenant agreement. However, these people forget that the tenant remains the responsibility of the owner in an LLC deal, whereas in the case of TIC, the sponsor sets up the deal and thus provides highly reliable tenants. Also, as these TIC sponsors deal with many properties, they can exert a great deal of influence when dealing with lenders. Therefore, the Sponsor could achieve very favorable financial arrangements for the TIC and its owners.

Furthermore, since ICTs have low start-up 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 an TIC and LLC deal, the decision should be simple and straightforward; ICT Rule!