Investors Misled about Tenants In Common

Denver, COFor people looking for a place to put their money, tenants in common investments may have seemed like a dream come true—the opportunity to put their money in real estate with other people, thereby lessening their individual risk. Unfortunately, some are learning that their investment was not as "risk-free" as they thought. They are also learning that they may be stuck with expensive property and no way to get rid of it.

People who share tenancy in common hold the right of possession to a property along with other people. That right can be equal or unequal shares in the property and those who hold a TIC can be related or unrelated. They can also own a residential or commercial property. Furthermore, they do not have to inhabit the residential property—a TIC can be arranged for property that is then rented out to someone not involved in the TIC.

With a tenants in common investment, all parties involved in the property have an undivided interest in the entire property. So, while a building may have 8 units, a person who owns one-fourth of the investment does not necessarily own 2 units. Rather he owns one-fourth of the entire property.

However, with the current recession, the benefits of owning real estate have fallen, along with the value of property. The problem is not that the value of the investment has fallen—it's that some investors were not warned about all the risks associated with tenants in common investments. They were not told, for example, that the investment is highly illiquid or that there is a very limited active secondary market.

Of course, there are also organizations offering completely fraudulent tenants in common investments, or offering investments designed to do no more than make the offering organization a ton of money. For example, a real estate company can buy a building, making large commissions for itself on the purchase, then sell the building at a higher price to TIC investors, making not only a profit on the sale but also earning commissions on the sale. It can then have its own division that handles the transaction, at the same time charging investors fees for doing so. Now, this is certainly not illegal activity, but it means that the real estate company has a vested interest in making as much money as possible off the transaction and could therefore be less interested in the investor's needs.

People with money in tenants in common arrangements are often looking for a good investment. If they were pushed into TICs by their financial advisor, who did so without considering the investors' risk tolerance or need for liquidity, then the investors may be able to file a complaint to get some or all of their money back. The sad truth is that some financial advisors were induced by the high commissions associated with TICs to sell them to investors who really should not have had their money in TICs at all.

With any investment there is a risk of losing money. If the investor is aware of that risk and accepts it, then there is no recourse. However, if the investor was not made aware of the risk—if the risk was either not discussed or if the investment was falsely portrayed as being risk-free—then the investor has been misled. Fortunately, there are ways for the investor to recover his money.