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How to create a TIC in San Francisco

September 18, 2018

What is a TIC?

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.

The Risks

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 Rewards

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.

Selling

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.

Danielle Lazier + Associates

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.

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View Full Street Address SAN FRANCISCO, CA 94114 (415) 528-7355 ©2018 VIVRE REAL ESTATE. ALL MATERIAL PRESENTED HEREIN IS INTENDED FOR INFORMATION PURPOSES ONLY. WHILE THIS INFORMATION IS BELIEVED TO BE CORRECT, IT IS REPRESENTED SUBJECT TO ERRORS, OMISSIONS, CHANGES, OR WITHDRAWAL WITHOUT NOTICE. ALL PROPERTY INFORMATION, INCLUDING, BUT NOT LIMITED TO SQUARE FOOTAGE, ROOM COUNT, NUMBER OF BEDROOMS, AND THE SCHOOL DISTRICT IN PROPERTY LISTINGS SHOULD BE VERIFIED BY YOUR OWN ATTORNEY, ARCHITECT, OR ZONING EXPERT. IF YOUR PROPERTY IS CURRENTLY LISTED WITH ANOTHER REAL ESTATE BROKER, PLEASE DISREGARD THIS OFFER. IT IS NOT OUR INTENTION TO SOLICIT THE OFFERINGS OF OTHER REAL ESTATE BROKERS. WE COOPERATE WITH THEM FULLY. EQUAL HOUSING OPPORTUNITY. ALL INFORMATION DEEMED RELIABLE BUT NOT GUARANTEED AND SHOULD BE INDEPENDENTLY REVIEWED AND VERIFIED.
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