How to use TIC's and options?

Question

Suppose I find a house for a friend to buy and I purchase an option on it for ex. say 90% FMV less minor rehab at most and resell option to friend for say 10% plus I'd be funding it for him until I sell his house for a nominal cut. Should I buy an option from him in order to sell it or do a TIC agreement to sell it? How does the strategy sound overall? Or could we use a TIC with the first transaction too or not at all? I'd imagine with these numbers I could net 15-20k for helping three people get something they want.

I've just read about these terms and I've a neighbour who's looking to downgrade and doesn't appear to be doing more than thinking about the whole process so I'm trying to see how I could squeeze myself between some money. I've been doing some marketing and if this is a good direction it would be a good excuse to really focus my marketing efforts to particular neighborhoods. What do you think?

John Thedford · Answer

TIC is almost like owning shares. It could be 1% or 73%. As Dave mentioned, it is a form of title ownership. TIC--tenancy in common, can be purchased. Many commercial properties have parts of ownership sold off as TIC. You could buy some TIC ownership in a large strip mall, apartments...anything. It can be a SFR as well. I went in partners on a flip a couple of years ago..and the tax records showed TIC...owner x50% and me 50%.

Basically there are three types of ownershipTenancy in commonTenancy by the EntireitiesJoint TenancyIf you take title as a TIC, your ownership can be inherited upon one parties death-depending on who it is willed to. It does NOT pass to the other owner(s) unless willed to them.Tenancy by the entireities--married couplesJoint Tenancy--title passes to the other owner upon one parties death

It does sound like your intent is to represent others for a fee. If that happens, that is brokering. As Dave said, get your license. Problem solved.

Tenancy derives from the word TENEO--which means to own or possess. You rent to tenants--they have the right to possession.You may have a tenancy at sufference...the tenant is staying without your permission (owner suffers)So--all tenancies are a form of ownership.

Dave Foster · Answer

@Benjamin Cowles, because options exist historically so that an interested buyer can use a span of time to determine when and or if to purchase an asset from a flexible seller - not for someone to lock up a property for a period of time so they can find an actual buyer (unless you say that up front and the seller is willing).

TICs are a manner in which title is held in real estate.  This process will change the ownership structure of the real estate and your "friend" will be giving you ownership and obligating themselves to you.  It is highly likely that this could also result in a taxable event for you or them.

You're attempting to use structural means and control to act as a broker of real estate which you don't own.   Your "friend" becomes a neighbor.  And you went from helping a friend to squeezing money from a neighbor for doing something you may or may not be legally obligated to do.  But as soon as you approach a seller and offer them an option without intent to take title you cross a major ethical chasm in my mind.

You want to move in real estate and get full advantage then get your license.  It's not hard.  You'll get other advantages such as mls access, broker support, and liability protection.

Or just do your "friend" a favor and find a buyer for them.  If it's another friend then you've done your neighborhood a favor anyway right?  Accept their thanks and feel good about it.

Benjamin Cowles · Answer

Thanks for all that.

I like that I can log in here and get lots of free info but I really could use a  lawyer's advice in general. What should it cost to sit down for the first hour then subsequent hours if different? I've only heard scary rumors what it costs. Should I consider one of those websites that charge a monthly fee? Any advice on getting professional advice anyone?

Benjamin Cowles · Answer

Gotcha. Yeah, he's a friendly neighbor I'd call him and I do 'come in  peace'. And I simply intend to "squeeze" myself between people's needs where of course there's room. And I can provide an equal or better value to the alternative.

And I could buy and rehab downgrade house for friendly neighbor and to prepare him to buy it I could also help him sell via methods mentioned with sufficient knowledge, hence my research. Otherwise if I just leave him to get with a realtor I'll be left at their mercy and would rather take some control in the matter and further increase my return.

If as soon as I inform him I've got him a house about to rehab for him to buy he can either look for a realtor to sell and risk losing house I'm holding for him if realtor doesn't sell in time and I sell elsewhere or...

for a non refundable option fee on his house so he knows I'm serious, we agree I keep downgrade house for him til I find a buyer for my option("flex/non-exclusive option"?) or he sell it himself first, in which case I get my option fee back. Or whatever we work out. I'm just looking at possibilities. But a realtor wouldn't be able to find and hold a house for him til they sold his first.

A license will have to wait. Following rules and maintaining accreditations/certifications/licenses etc is just not my forte. Just following my own rules and discipline is a struggle for me atm. Other ducks would need to get in a row first. But yes I see the advantage.

Dave Foster · Answer

@John Thedford, Is Tenancy in Sufference what my wife was talking about???

Dave Foster · Answer

No offense taken @Benjamin Cowles.   But I disagree in part with what you just said.  This site is about hooking your friends up.  It's about making friends, helping friends and along the way making money with your friends.  I see that every day in the forums.  Using friends isn't part of the deal.  But if what you're doing is actually helping a friend then that's a different story.

Sorry if the tenor of my post was perceived critically.  Your words changed from "friend" to "neighbor" and "help" to "squeeze in for some money".  That raised red flags.

What I wanted to convey is that the strategy and activities you are considering are an over reach for the sole purpose of enabling you to act in the role of real estate agent to this person.  They do need a realtor.  And if any of the 5 bazillion licensed realtors in Cape Coral can't serve their needs then shame on them and all the more reason for you to jump in the pool as one of the top realtors your first day.

You can easily overcome all of that over reach by becoming a realtor, growing a real estate career dedicated to investors and along the way buying and selling your own discoveries to make more money and operate more easily within current law and regulation

Benjamin Cowles · Answer

Thanks. I appreciate your response especially with the tax part so I'll look more into TIC's. I read about them from Bill gulley I believe and he seems to know his stuff. He has some educational website. But I've not read about them elsewhere too much so that may mean something.

As far as the rest, I know you're not accusing me of being up to no good but somehow you're wording and reuse of my wording appears that you want to draw such a picture. And I don't get the ethical chasm. And c'mon, this is a forum about putting food on the table, not hooking your friends up. Not sure what your point was there. No offense. Thanks

Benjamin Cowles · Answer

Thanks. By what exactly is the problem? I wasn't planning on getting a licence necessarily if I didn't need one.

Dave Foster · Answer

@Benjamin Cowles, if you get a realtors license your problem's solved.

How to use TIC's and options?

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