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Resilientmon…, Other/Just Looking in San Francisco, CA

What do buyers need to watch out for when buying into a tenancy in common? Are there HOA fees for TICs?

Asked by Resilientmonkey, San Francisco, CA Sun Apr 3, 2011

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A TIC operates similar to a condominium and there are monthly dues to cover common area maintenance, property insurance and/or some utilities. The most important factors are ownership and financing. In a TIC you are all co-owners and share the responsibilities accordingly. There are 2 types of financing available. Group loans and fractional loans.

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.

Best,

Oggi Kashi
Paragon Real Estate Group CA DRE 01844627
Web Reference: http://www.oggikashi.com/
2 votes Thank Flag Link Mon Apr 4, 2011
Hey there-

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

DRE#01358540
0 votes Thank Flag Link Sat Jun 4, 2011
Make sure to watch out for potential issues associated with financing a TIC.

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.

Frank@MortgageFinancePro.com
(415) 475-9309

http://www.MortgageFinancePro.com
California Dept. of Real Estate #: 01371776
NMLS #: 271709
0 votes Thank Flag Link Fri Jun 3, 2011
Many things, my friend.

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.

-Danielle
0 votes Thank Flag Link Mon May 30, 2011
Yes, there are shared costs similar to a condo. As for what to watch out for, Eileen has some good points, so start with her advice. But is also depends on the type of TIC. A TIC in a 2-unit building can bypass the condo-lottery process when two owner occupiers have lived in their respective units for the same 12 months. A 3 to 6 unit building must enter the lottery to have a chance at condo conversion, and frankly the rules are so difficult these days that you might just want to approach these TIC's as if they will always be TIC's. That said, some buildings could be very far along in the lottery process - but you need to review the condo-lottery rules and the building's history with one of the expert attorney's in town (see Eileen's links) to know whether or not the buidling has a chance to condo convert anytime soon.

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
Web Reference: http://www.SFisHOME.com
0 votes Thank Flag Link Mon May 16, 2011
When a TIC is set up the cotenants decide on how they are going to collect payments for utilities, insurance, repairs.... Not every TIC has a TIC agreement or has monthly costs. It is only to your benefit if this is already set up. A building with a TIC agreement and monthly costs is generally more professional and better run. If it doesn't have these items it will only cause headaches down the road as people scramble to collect payments and put into place systems that should have been there since the beginning. If you enter into a TIC because it has "low or no costs" beware that this may not be the best option in the long term.
0 votes Thank Flag Link Wed Apr 20, 2011
When a TIC is set up the cotenants decide on how they are going to collect payments for utilities, insurance, repairs.... Not every TIC has a TIC agreement or has monthly costs. It is only to your benefit if this is already set up. A building with a TIC agreement and monthly costs is generally more professional and better run. If it doesn't have these items it will only cause headaches down the road as people scramble to collect payments and put into place systems that should have been there since the beginning. If you enter into a TIC because it has "low or no costs" beware that this may not be the best option in the long term.
0 votes Thank Flag Link Wed Apr 20, 2011
HOA fees: A TIC agreement will typically specify that owners will share monthly costs to operate the building, which include common area electricity, trash, water and insurance. Owners will split the costs, which will function as HOA fees. But there's not technically an HOA until there is a condo conversion.

Eileen
Web Reference: http://www.insidesfre.com
0 votes Thank Flag Link Wed Apr 6, 2011
Hi Resilientmom--Love your screen name! What I would recommend watching out for when purchasing a TIC is how far from condo conversion a particular building is--or if condo conversion is even possible. If you determine that you may be able to convert during your time of ownership, the next step is taking a long look at your TIC partners' profiles and finances, as well as the TIC agreement.

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:
http://www.g3mh.com/articles.htm

I also have a TIC section on my blog:
http://www.insidesfre.com/category/tics/

Good luck, and feel free to message me at ebermingham@zephyrsf.com if you'd like additional perspectives or need assistance evaluating a building.

Cheers,
Eileen
Web Reference: http://www.insidesfre.com
0 votes Thank Flag Link Wed Apr 6, 2011
It is not the most desired style of ownership becuase all things are not equal, you share the good times and bad times with others if someone doesnt pay or in the event to damage of the property. i find it more on vacation type property out this way. You nee dto cpmplete alot of due diligence and inspection of teh all teh docs, rules, regualations and financials before buying
0 votes Thank Flag Link Mon Apr 4, 2011
A tenancy in common is ownership by more than one and the shares can be equal or unequal. One person can own 50% and two others own 25% each (or any variation)- when one of the owners dies their share passes on to their heirs not the other owners. HOA fees are on the property, and pass with the property - how you hold title does not matter. You should consult an attorney or other professional for advice on how to hold title.
0 votes Thank Flag Link Sun Apr 3, 2011
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