TIC vs Condo

---

Ever wondered what a TIC is and how they are different from condos? Are you thinking of buying a TIC but are not sure if it’s right for you? Here’s an overview to help you sort it out.

TIC is short for Tenancy in Common. It is a way for more than one owner to hold title on a property. You can buy a single family house as a TIC with friends or family, but for this discussion, I’m focusing on TICs for sale in multi-unit buildings.

TICs are often priced lower than condos so they can be appealing. But there are differences and risks to buying a TIC that you should be aware of.

• When you own a TIC, you share ownership of the entire building with all the owners and only have the right to occupy your unit. You do not own your specific unit.
• Financing for TICs is different. In the recent past, the only way to get financing on a TIC was for all the owners to get a group loan. This created tons of financial risk. What if one owner lost his job? What if another went bankrupt? You’d all be in a big mess. These days you can get “fractional financing,” which means you can get your own loan on just your percentage ownership of the building. However, this fractional financing comes with additions costs:
  • Only a handful of lenders offer TIC financing
  • Down payments are usually 25% or more
  • There are no 30 year fixed loan options – your only choice is an adjustable rate mortgage (ARM)
  • Interest  rates are higher
• Rent control applies to TICs (it does not apply to condos). If you have to move away but plan to come back, and want to rent your unit while you’re gone, your tenant will be protected by rent control. When you return you can not evict them. Could you do an Owner Move-in Eviction (OMI) to regain possession of your unit? I would not count on that as an  option because a building can only have one OMI, and even if there are no OMIs on the building, most TIC Agreements ban them to  preserve their future ability to convert to condo. 
• The city has placed severe restrictions on TICs converting to condos. If the building is 5+ units or mixed use (i.e., it has a store), conversion will never happen. If the building is 3 or 4 units, it might  be able to convert when the condo conversion moratorium is lifted in 2024. But by that time, the number of buildings wanting to convert will be huge. Expect a multi-year wait in the lottery – that is, if they bring it back. There is no guarantee and new laws to prevent condo conversion may be enacted in the mean time.
• 2 unit buildings can still convert to condos with some restrictions and requirements:
  • Both units are owner occupied
  • Both units have been lived in for 1 year by the owners
  • There are no “no fault” evictions of protected tenants on the building (such as an Owner Move In Eviction)
  • There are no buyouts of a protected tenant after Nov 2014
  • If there were 2 no fault evictions of non-protected tenants, you must  occupy the unit for 10 years before you can convert
  • There  are some subtle rules about the eviction requirements based on the date of the eviction, so we would want to get a lawyer’s opinion on conversion potential before you make an offer
• TICs  need a good “TIC Agreement,” even though this is not required by law. It is advised to have a lawyer review the TIC Agreement before making an offer. Some important elements of a TIC Agreement would define who gets to occupy what unit, how the property tax bills are paid (especially when the tax goes up after a unit is sold), how the utility and repair expenses are divided, what parts of the building are shared “common areas,” and many others. Occasionally TICs are run less formally than condos, which could lead to conflicts among owners if there s not a well defined TIC Agreement in place.
• TIC prices can be more volatile than condos. In a hot market TICs prices rise quickly like condos, but when the market is soft, they drop faster. When there are very few condos or homes for sale, buyers will consider TICs because they may be their only option. But when there are many properties for sale, most buyers will choose a condo before a TIC. This could mean a loss of equity if you have to sell in a down market.

San Francisco’s foremost lawyer on TICs is Andy Sirkin. He writes many TIC Agreements. For a longer description of TICs, how to create them, and more on the rules for converting to condo, you can read details from him here.

There are many happy TIC owners in San Francisco so I hope I haven’t totally scared you. If you are comfortable with particulars of owning a TIC, it’s quite possible to get a great deal on an apartment, especially if there is potential for condo conversion.

If you’re searching for property and want to look for TICs, or want to avoid them, know that most of the major search sites combine TICs with condos and have no way to filter just one or the other. I suggest trying my preferred real estate search site, RealScout, because it does include filters for TICs.

Still have questions about TICs? Interested in buying a multi-unit building as a TIC with friends? Want to sell your TIC? Let’s talk!