What is a TIC?


We use the term TIC loosely to refer to a type of property, but TIC (Tenancy In Common) describes a form of ownership, and it is really an estate-planning tool. It is how two or more people hold title when they want to specify or account for fractional interests. You can imagine that investors would prefer this type of ownership.

We use the term TIC to refer to an individual unit within a multi-unit building where owners must hold title as Tenants In Common. In San Francisco there are strict limits governing the conversion of multi-unit buildings to individual condos. So, for example, when there are three parties interested in buying separate units within a three-unit building, they can take title as Tenants In Common and behave as though each owns their own specific unit. We would describe each unit as a TIC, but it’s important to remember that we’re talking about the form of ownership.

How is a TIC different from a condo?


A condominium is a legally subdivided parcel. When you buy a condo you take title to that whole parcel separate from other condo owners. You can encumber your interest with a residential loan as you see fit. A TIC isn’t a separate parcel from the whole building, and though your interest is a specified fraction, you share title with other TIC “tenants.” To secure a residential loan all tenants would work together as the loan would be secured by the whole building.

TIC members develop legal agreements fractionalizing interests among the owners, defining exclusive use areas for each unit and creating budgetary and operating guidelines for the whole building and common areas.

What are the risks associated with buying a TIC?


Buying a TIC in this or any market bares additional risk. They are less marketable, which is why they’re more affordable. You can finance a condo, single family home, or multi-unit building (up to four units) with a residential loan. Strictly speaking, you cannot finance a separate TIC unit (a fractional interest) with a residential loan. To secure a residential loan all “tenants” would have to work together and underwrite the whole building. They would be underwritten as a group and share liability to the loan. The downside to this is that all four owners become equally liable. In essence, group loans impose shared liability.

In the early 2000’s a few local lenders created fractional financing for TIC ownership to fill a need in this segment of the market. These lenders will write different loans for each TIC unit, making each owner liable solely to their own loan. This eliminates the risk associated with a group loan.

On the other hand, there is no secondary market for a fractional TIC loan. They are not considered residential, so they cannot be sold to Fannie Mae and they’re not as marketable to Wall Street. Their relative interest rates are higher than residential loans and so far fixed-rate terms are not available.

Fractional TIC loans eliminate the risk associated with a group loan. However, they introduce risk associated with higher rates and adjustable rate terms. There is also a risk associated with having a relatively new kind of loan that is not guaranteed to exist for future buyers. (See further implications of group and fractionalized loans here.)

What are the benefits of buying a TIC?


There are two primary benefits. First, their respective prices are lower. Generally, TIC prices are lower than condo prices by 20% – 35%. Additionally, there are circumstances where owner-occupants may bypass the condo conversion lottery system. This improves marketability and creates individual ownership. In these cases, TICs can represent interesting investment opportunities.

The second benefit is that in certain neighborhoods – older neighborhoods where new development is rare – TICs represent an large pool of inventory. Most of San Francisco’s multi-unit Victorian buildings have not been converted to condos, so buyers interested in this style have more opportunities in the TIC market.