TIC stands for a ‘Tenancy In Common’, and in simple terms it means that a group of people have combined resources to buy a multi-unit building. You do not own a TIC dwelling, but you do own a percentage stake with the other people in the building. This means that in a multi-unit building you will own something like a 10% stake of the entire building, but not the unit itself.
The percentage that you do own depends on a number of factors, including square footage or desirability. There is no individual deed for your specific unit, but rather a single deed for the whole building. As for your dwelling, your ability to use it comes from a written contract made by all co-owners, which is the TIC Agreement. This document sets the rules for your tenancy in the property.
Complexities: TICs are hardly an easy thing to grasp, both as a concept and legally. Contracts need to be read, understood, and checked thoroughly. Having a lawyer do this is essential.
San Francisco complexities: Not only are TICs tricky, but they can be even trickier in San Francisco. The city’s intense real estate market, strict rent-control ordinances and condo conversion rules have all increased the popularity of TICs. Due to their popularity, there are a number of different bodies involved in San Francisco’s TIC Agreement rules and regulations, and you need to be aware of any changes that are made at different levels.
Condo conversion: You might not be able to convert a condo with a TIC Agreement. This can affect long-term potential further down the line, and its advisable to talk to a lawyer to find out whether it is possible before you buy.
Mortgage offerings: When financing a TIC your options are smaller. Your most likely option is a fractional loan, and there are few lenders and loan options when it comes to fractional financing. Some of the drawbacks could include a higher down payment, higher monthly payment, and narrower choice of lenders.
The price: In San Francisco TIC properties can be 10-20% cheaper than condos. Per square foot you get much more house for your money.
Accessing the real estate market: With a low price comes better access to the market. Being able to get a foot in the door of the San Francisco real estate market through a TIC is a great reward for the complex buying and contract negotiation process.
Neighborhood choice: Since you’ll be buying as part of a group, and you’ll be leveraging the combined buying power of the group, your options might open up significantly with a TIC.
Renting: Want to rent out your property? With a TIC, you’ll be able to purchase shares in a rental property similar to how you might rent out a condo. TIC units do have rent control, so unlike a condo owner you will be more constricted in what you’ll be able to charge over time. Long term, that could affect your financial decision in buying a TIC as a potential rental property.
So what happens when you want to move on from your TIC property? There are both risks and rewards to selling your shares in a TIC.
For instance, if you are able to convert your TIC to a condo (discussed previously in the risks section), you can add up to 25% increased asset value in addition to market appreciation. This, however, is all dependent upon the ability to convert. Converting a unit into a condo is done through a lottery, and considers certain factors about past evictions and previous lottery entries, and so it does come with its own complexities.
Even without condo-conversion, selling a TIC is a safe bet, since the market will have continued to increase the value of your property. The same rate of appreciation applies to TICs as to condos, so you can expect a similar return on your investment.
Weighing up the pros and cons of a TIC is the best way to make a smart decision. Understanding the complexity of a TIC Agreement, especially those that apply to the San Francisco real estate market, is an essential part of the process.
Looking for information about buying or selling a TIC in San Francisco? Give Danielle Lazier + Associates a call today, and let our San Francisco real estate experts find you the perfect space to call your own.
