Home Buying in Alamo Square>Question Details

M, Home Buyer in California

Can someone explain a TIC to me? I'm sure you all get asked this all the time, but I'm new to the SF market.

Asked by M, California Thu Apr 16, 2009

Thanks.

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M,

It's a bit complicated, but the short version is this:

TIC stands for Tenancy in Common, which is a legal form of ownership. Essentially it's a workaround to the tough condo conversion laws here, and there are several distinct differences between a TIC and a condo.

1. With a condo you own 100% of your unit and a share in the common area. With a TIC you own a share in the entire building.

2. With a condo you get your own tax bill. With a TIC you get one tax bill for the building and each owner (called co-tenant or co-owner) pays their share of the bill according to their percentage of ownership.

3. With a condo most lenders can finance. With a TIC only a select group of lenders will finance and the loan products are substantially more expensive, making reseal more complicated due to limited financing options.

4. The number of units in the building and eviction history have huge impact on ability to condo convert, rent a unit(s), and resale.

5. With TICs there is generally a lot more interactivity between the co-owners, which can lead to interpersonal frictions that are not as prevalent in condo situations.

6. Because the financing is more expensive a TIC should be less expensive than a similar sized condo in the same neighborhood.

An excellent resource for TIC info is http://www.andysirkin.com. If you'd like more in-depth info or explanations of the above feel free to call. Obviously we're happy to assist you in your purchase, but make sure whoever represents you knows this subject well. I suggest you interview several agents/brokers and find the one that fits you best.

Regards,

Lance King/Managing Broker
415.722.5549
1 vote Thank Flag Link Thu Apr 16, 2009
Tenancy in Common is a way that anyone can "hold Title" to any property. However, in San Francisco, when someone refers to a TIC they are almost always referring to your ability to buy "exclusive use" rights to an apartment in a multi-unit building. As stated below you in fact own an interest in the entire building... a simple example is a 10 unit building where every unit is exactly equal to each other so you would own a 10% interest in the building. But the TIC Agreement will state that you are the only one who gets to use your apartment.

In many ways it looks, smells and acts like a condo except for the financing and tax bill. Until a few years ago all owners got one loan for the entire building and paid their percentage of the mortgage. Recently a few lenders came out with "fractional financing" which is an individual loan on each apartment. These tend to be 1 to 2 points more expensive than a condo loan, a major reason why TIC's are priced lower than Condos. However, there are still buildings with group loans. I'm currently Listing a TIC in a 12 unit building with a group loan. They have an adjustable interest rate that is currently 4.5%, and had been 5.5%. While the interest rate is quite low, the downside is you have to assume the Seller's portion of the loan which usually is not as high as 80% of the value so you need more cash... and in the case of my listing it is less than 50% of the apartment's value so you need a lot of cash.

A well run TIC building will take the headaches out of TIC ownership. For example, hiring an accountant to manage all of the bills. You send your payments into them, and they make sure the tax bill and loan gets paid. Fractional financing makes it easier too, but again the loan will be more expensive. Many new buyers in San Francisco will see what appears to be a great value... a really great apartment for a lot less than everything else they've seen. But you need to compare the monthly costs - if the loan is 2 points higher you may find that the TIC has to be 20% less to make it equally affordable. If you're a cash buyer the deal may be too good to pass up, but if and when you sell you need to take into account that most buyers will need a loan and will be weighing the monthly costs of a TIC vs. a Condo.

With really low interest rates on Condos, and a lot more inventory this year than in years past, TIC's have fallen out of favor. But to me that's an excellent time to buy a TIC since you should be able to strike a hard bargain. Buy when they are out of favor, sell when they are back in.

Lastly, I in part agree with Lance that owners in a TIC are often more involved with each other. But I think that is more true in Condos than most people realize. Imagine two owners in a 2-unit building that are condos. They share quite a bit and every extraneous bill has to be discussed. The larger the building the more likely you can be incognito if you choose to. And again, the building can hire an accountant for the bills, a maintenance company for cleaning, etc. So in my opinion there is little reason your TIC can't feel like a Condo.
0 votes Thank Flag Link Fri Apr 17, 2009
M,

I believe that Jed is correct that this idea has been talked about, but it is not a reality yet. According to the Assessor - who I just got off the phone with to confirm - ALL TICs receive one tax bill.

Jed is correct that it is best to have a conversation because there are a lot of issues, and equally correct on attorney involvement.
0 votes Thank Flag Link Fri Apr 17, 2009
M,
I was reading Lance's answer to see if he was giving you correct info and got as far as the tax bill. The Assessor's office announced two years ago that they would recognize TIC ownership and send seperate tax bills to each fractional owner.

TIC is a very common way of taking title. It allows for ownership in different percentages and for owners to sell or transfer their interest at anytime.

When a group of tenants in common buy a property they essentially go into business together. Each owns a fraction or percentage of the whole. A contract is drawn up between the owners spelling out responsibilities and rights. It is this document, called the TIC agreement, that determines which unit is yours. It also covers many other very important possibilities such as what happens if someone in the group defaults or can't pay thier expenses.

This is easier to explain in conversation because it allows for questions. Most agents that represent buyers of TICs will have the buyer sit with an attorney to review the TIC agreement because they are entering into a contract and Realtors are not licensed to interpret contracts.

Hope that helps.
0 votes Thank Flag Link Fri Apr 17, 2009
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
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