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TIC’s (Tenancy in Common) basics

by sfishome on August 1, 2006

TIC stands of Tenancy in Common which most of the country just sees as one of the many ways a married couple can hold Title to their home. But in San Francisco it’s become a way for individuals (or couples) to buy apartments in building’s that are not Condos. In most of the rest of the country, converting an apartment building into Condos is a “relatively” easy process. In San Francisco, it is anything but easy. Condo conversion is severely restricted here, so buying via Tenancy in Common has become the only way for individuals to purchase exclusive use of an apartment in a building that looks, acts and feels like a Condo, but isn’t a Condo (and may never become one).

To get a fully detailed legal primer on what TIC’s are, you should visit either http://www.g3mh.com/articles.htm or http://www.andysirkin.com/HTMLArticle.cfm?Article=1

This post is not intended to be legal advice, and given how often things change, this post could be severly outdated by the time you read it. So this post is simply to alert buyers to what the heck a TIC is when they see it come up time and again in their general searches for apartments to buy.

The #1 reason I hear from Buyers about their interest in TIC’s is that they are cheaper than Condos. Unfortunately, they are cheaper for several reasons that many buyers don’t want to deal with, or can’t. One is that often times the downpayment requirements are for 20% or more, whereas with Condos many buyers can get loans that require 10% or less cash. The other big issue for buyers is that TIC’s require you to go on the same loan as the other buyers (or current owners) of apartments in the building. In a condo you get your own loan. In a TIC you get a loan with every other owner/buyer. In a 6 unit building that means you’ve got 5 other parties who share loan payments with you. There are several banks that have come up with individual loans for TIC buyers recently, but these generally require higher down payments, and have higher interest rates. Over time, these loans may get better and better, but for many these loans aren’t all that attractive just yet.

So in general, if you don’t have a good downpayment, and you don’t care to deal with others for your loan, then TIC’s are most likely not for you. On the other hand, TIC’s have become so common in San Francisco that they’re starting to look and feel like Condos more and more. You will or should have a TIC agreement and usually all the house rules that you get with Condo associations. The TIC agreement spells out what happens if someone defaults on their loan. And in all buildings with 6 or fewer apartments, you have a chance to Condo convert some time in the future…. at least for now. The city’s board of supervisors always seems to be coming up with ways to limit or eliminate Condo conversions, so again, visit the above two sites for much more indepth information on TIC’s, and for more questions or concerns, consult one of the attorney’s that you’ll find at both of the above sites. And you should also keep in mind, that while a Condo allows you to get your own loan, you still share common areas and neighbors and have an HOA board making decisions for the building.

So…. TIC’s are cheap because they are hard to understand, they often require more cash, you often pay higher interest rates, the city seems to hate them and makes owning them more difficult when they can, and sharing ownership with people you don’t know just doesn’t work for some people. So if you like TIC’s, keep the above in mind when you try to re-sell it down the road. The pool of buyers is likely to be far less than a comparable Condo’s pool of buyers. On the other hand, if you want to own an apartment for 5%, 10% and even 20% and 30% below comparable Condos, then TIC’s are the way to go. In the sub $400,000 price range TIC’s are probably your only option. And in all higher price ranges you’ll get a bigger, nicer TIC apartment than a similarly priced Condo apartment.

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