In a group loan, all co-owners are on the same loan. The negative there is if one co-owner doesn't make his/her share of the mortgage payment, the other co-owners are on the hook.
In a fractional loan, each co-owner has his/her individual loan independent of the rest - very similar to a condominium. The negative there is the interest rates are usually between 1.5% to 2.5% higher.
Overall, in a TIC, all co-owners need to be aware of the financials and stability of the other co-owners. It's not an ownership type that works for everyone.
Paragon Real Estate Group CA DRE 01844627
Yes, like with any multi-unit living situation, whether a TIC or condo, you may have HOA dues. This is determined by the group/HOA.
It's always best, as a prospective buyer of a TIC, to talk with a qualified attorney to get better persepctive as to the pros and cons.
If you have any questions, please don't hesitate to call or email.
Rich Bennett - 415.305.4911 cell
Zephyr Real Estate
2500 Market St.
San Francisco, CA 94114
With the fractional financing option there are really only two lenders (down from a peak of about 8 lenders at the peak) currently offering this type of financing. You should expect the rates and terms associated with this financing to be significantly less attractive than what would be available for financing the purchase of a similarly priced condo. More importantly, from my perspective, is that there is no certainty that fractional financing will even be available when you are ready sell. This would limit your potential pool of buyers to "cash only" buyers and likely force you to sell at a lower price than would be possible if financing were available for your TIC.
As for the group financing option, the big issue with this option is that you and your TIC partners are equally and severably liable for the full payment of the mortgage not just your portion of it. Should your TIC partner stop making payments this will force you to either make the payments out of your own funds (or HOA reserves if available) or suffer the consequences of non payment as if you were the one who failed to make the payment.
There are also potential issues with obtaining financing should one TIC partner want to sell. For instance, if you were selling your TIC and your TIC partner was laid off this would probably make it impossible for a potential buyer (grouped together with your current TIC partner) to qualify for a new mortgage.
There are other financing issues to consider but I see those as the most important. Feel free to contact me for more details.
California Dept. of Real Estate #: 01371776
NMLS #: 271709
Check out this recent publication entitled Resolving TIC Disputes by local San Francisco real estate attorneys about the potential pitfalls of a TIC. There are many happily-ever-after TIC stories but this piece will have your eyes wide open.
Any further questions or help, please let me know.
If you are in a 3 to 6 unit building that converts from a TIC to a condo you are likely to experience a 15% to 20% to maybe even a 30% appreciation in value. TIC's are out of favor right now, and therefore priced well below condos in our current market. I find that truth to make buying a TIC a great investment now. However, I can introduce you to many Realtors and even attorney's who disagree. Of course contrarian investing - meaning buying when no one else is buying - is not easy, but just might have outsized rewards down the line.
Lastly, buildings with 7 or more units can not EVER be converted to condos per today's San Francisco laws.
There are many, many more variables depending on the building you are interested in, that the final answer to what to "watch our for" is "everything". You should consult an attorney who specializes in TIC's to get a thorough review of the property you are interested in once you find it. Good luck
I'm seeing a lot of TIC owners having problems in the current lending environment with their attempts to condo convert. For example, one or more partners are not eligible for the refinance into condo loans. Another big issue is that some units in a building may be rented and thus not owner occupied. That may have implications for a refinance, as some lenders won't lend on buildings with a certain percentage of units rented.
The best resource for TIC articles is the Goldstein Gellman Web site:
I also have a TIC section on my blog:
Good luck, and feel free to message me at email@example.com if you'd like additional perspectives or need assistance evaluating a building.