TIC Proportionate Ownership

[Dave Sanders]

Hi all, I am hoping I am posting this to the right thread, if it even matters. I am new to CRE and am in the process of entering into a TIC structure to purchase a CRE property. Currently, there are two of us in the TIC, with disproportionate ownership percentages. 70/30 (me) currently. Does anyone have any suggestions on how I can increase my ownership? I would like to eventually get to 50/50. I have heard of possibly paying for a larger percent of the expense and taking little to none of the profits until the ownership is 50/50. Any help you can provide would be very helpful. Thank you in advance.

[Bill Gulley]

As David mention, the possibilities are endless, your initial share is usually agreed to by the dollar contribution, but some can be a reward for bringing or managing the deal. 

What you're asking about is a "buy out agreement" and these set out the conditions, terms and timing of a partner's right to purchase all or part of a business or shared asset. 

The value of services performed isn't an arbitrary number, it needs to be based on the market rate of that service, what is charged should be available in the market at or near that going rate. Example, rental management is 10-15% of rents (depending on that rent level for a minimum charge).

First question I ask is do I really need a partner, if I do or want one, what do they bring to the table? What is that worth? 

The value of that partner can be paid in equity, equity growth and tagged to future income, my next question is to what extent do I give up my ownership and is it justified? 

There are other conditions where either partner should be allowed to buy out the other, death is a good example unless you want a spouse to be your new partner. Look up "life occurrences" or "life events". 

An LLC has an Operating Agreement, a TIC has a TIC Agreement, if you have both the terms need to be identical on common topics, like income distribution, so you avoid misunderstandings.

As to timing, I'd suggest you use annual adjustments or longer like 3 or 5 years, less than a year or at any time will just drive your account nuts. Mutual buy out options should be at any time, depending on conditions. 

Speak to your accountant as to each partner's roll, active or passive. 

As to management, be careful about naming your own poison, duties should be addresses but leave room to manage and the use of partner's consent is a good CYA strategy when used wisely. One partner should never really be the only boss because the buck stops with the boss and that's a liability too often. 

Fact is, most business partnerships break up and usually neither will be happy, so address common matters like time expected to contribute, cash contributions, when to sell, how to value assets and when. Someone has to write checks, that someone should have a cut off as to check signing authority, like $500 or $1,000 at which point consent is required by the other. 

The best advice I can give you is to see a local attorney and your accountant before you leap! Good luck and welcome to BP!  :)