What is a TIC? Is it for Me?

|May 19, 2017

5aWhat is a TIC?
The acronym “TIC” stands for tenancy in common and/or tenants in common. A TIC is formed when two or more parties come together to purchase a multi-unit building.

In a TIC, owners own a percentage in an undivided property rather than a particular unit. For example, a buyer purchases unit #1 in a 10-unit building, in a TIC, they own 10% of the building. Percentages of ownership are either equal for each unit or vary depending on the square footage.  A “Tenancy In Common Agreement” is created and indicates what unit the buyers percentage grants them ownership of.

Why Would I Buy a TIC Over a Condominium?
TIC’s give buyers the opportunity to own real estate in San Francisco at a slightly lower cost. This provides options for buyers who cannot afford a condominium or single family home and/or allows buyers who are looking for “more bang for their buck” to purchase at a lower cost.

Please keep in mind that TIC’s are not a fit for everyone. When it comes to resale, we often see the DOM (days on market) exceed that of a condominium or single family home. Some buyers simply aren’t interested in exploring purchasing something unknown to them.

How Do I Obtain Financing for a TIC?
Originally when TIC’s formed, they sold with a blanket loan. A blanket loan means there is one loan for the entire building and each owner pays a percentage of the loan. If one owner defaulted on their portion of the loan, the remaining owners were responsible for making up the difference so the entire loan wouldn’t default. As you can imagine, this was quite risky given you’re generally purchasing with a group of stranger’s. Luckily, TIC lenders now offer fractional financing were each unit can have their own loan. There are two main lenders in San Francisco who provide TIC financing being; Sterling Bank and Trust and Guaranteed Rate. TIC lenders do not offer a 30-year fixed product instead they offer a variety of adjustable rate mortgages (ARM).

Can a TIC Become a Condominium?
Yes. However, it’s not that straight forward. Currently there are three routes to convert from a TIC to condominium which I briefly outline below. In addition to the below there are requirements to qualify including owner-occupancy minimums, tenant eviction history requirements and tenant buyout history requirements.

Route 1 – Lottery Bypass – Two unit buildings can automatically convert for a cost of approximately $20,000 per unit plus the City’s normal conversion fee’s. Each of the units need to be owner occupied and the same person cannot own both units to qualify.

Route 2 – Expedited Conversion Program – From 2013-2020 buildings that have lost in the 2012-2013 lottery qualify along with buildings owned as a TIC as of April 15, 2013.

Route 3 – Annual Conversion Lottery – This is currently suspended and expected to return in 2024. In 2024 buildings of 2-4 units will be eligible to convert, however, buildings with more than 4 residential units will not be eligible.

What Are the Risks of Owning a TIC?
Like a condominium or cooperative, TIC’s have a greater risk than owning a single family home simply because owners have shared obligations. One of the shared obligations is paying the property tax. Property tax for TIC’s is billed for the entire building, not per unit. Therefor, each party must be able to pay their portion of the tax otherwise the remaining owners are left with the defaulting owners financial burden.

Is a TIC for You?
You’ll have to make that decision. I suggest touring TIC’s and condominiums, speaking with different lenders and enlisting a real estate agent who can help guide you.

Interested in Learning More about TICs in San Francisco?
Please call me at 415.860.1640. Visit LAURENFRASERPROPERTIES.COM.

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Lauren Fraser

Lauren Fraser

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