How To Figure Out If You Can Sell Your TIC

I’ve been fielding calls and emails regularly from TIC homeowners on long-standing group loans in 3+ unit buildings who want or need to sell their TIC interest. Unfortunately, many of these homeowners are unable to sell, and that turns out to be quite a surprise.

I wanted to put together a checklist to help these prospective TIC sellers determine whether they’ll indeed be able to sell their interest. So here goes:

1. Pull together all the information for the group loan. You’ll need the original purchase price/date for the property; the current loan amount on the building, and your portion of the group loan. You’ll also need to note the type of first mortgage and current interest rate (i.e., five-year adjustable rate mortgage with interest-only payment at a rate of 5.5%, etc)—and the name of the lender(s) for all outstanding mortgages.

2. Find out if your portion of the loan is assumable. Check with your lender to confirm whether your loan is assumable, meaning whether a new owner can step into the existing group loan without triggering a group refinance. Keep in mind that although your loan may have been assumable at the time of your purchase, the lender may have changed its policy (or the lender itself may have changed). If your loan is not assumable, you will have to qualify for a group refinance if a new buyer enters into the picture.

3. Obtain an estimated current value for your building. Getting the current market value for your building is more important at this point than the value of  your TIC interest. If you’re consulting a TIC loan specialist, he or she could potentially put you in touch with an appraiser who’d do a “mini appraisal” of the property and give you a ballpark value at a reduced fee.

4. Know that your property will be appraised as an entire building, not TIC interests. This is something most TIC owners don’t realize when they’re thinking about simply selling their portion of the building. An appraiser will be determing the value of the building, not the combined value of multiple TIC interests. So if you own a TIC in a four-unit building, your relevant comparative sales will be other nearby four-unit buildings—some of which may be income properties.

5. Determine how much of a loan your group could get in today’s market. Your loan consultant can assist you in obtaining a ballpark value of your building, and then disseminate all your information to arrive at the maximum loan amount you’d be able to obtain on the building. You’ll then have to back out what the other remaining co-owners would have to refinance to see what’s available for the new buyer of your particular interest to borrow on the new group loan. This, in turn, would determine the down payment required by the new buyer.

6. Consider fractional financing for the group. There aren’t many lenders doing these loans right now, and such loans typically require owners to have a lot of equity in their building. The loans also carry higher interest rates and potentially more stringent cash reserve requirements. But this is a good option if all owners can qualify.

7. If the group is able to refinance, confirm the value of your TIC interest. This is where your Realtor comes in; he or she can assess the market and gauge the value of your TIC. As you can see, this is the last step because everything else needs to check out before you can even think of selling.

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Comments

  1. john glynn says:

    What’s the primary impediment to selling that you’re seeing? That the new ownership group cannot re-qualify for financing based on value changes?

    I can see where these get challenging. Everyone’s equity is down, and that comes into play for the big picture even when only one party is looking to transfer their share…

    Fractional financing is going to be much more costly than a group loan, in most cases. If it’s an option at all, it needs to be evaluated side-by-side with other options. The premium paid for the convenience/safety of fractional financing has increased as traditional loan rates have fallen much farther than fractional loan rates.

    Interesting dynamic at play here. I’d love to hear more about how frequently you’re encountering this, and what the outcome tends to be.

    • insidesfre says:

      Hi John–Thank for your thoughful comments. Yes, the main issue is that TIC groups on one loan may not qualify for refinancing based on the equity they hold in the property (many were formed with, say, less than 20% down) and the change in value of the property. A huge issue is also that appraisers don’t view TIC buildings as being comprised of individual interests; they view them as multi-unit buildings. So until this changes, values will typically be lower when approached this way.

      And yes, the downside with fractional financing is that interest rates will always be significantly higher.

      I’ve unfortunately encountered these scenarios about four times this year. Would have had four more listings in 2010 if it were not for this reality.

Trackbacks

  1. […] There are 125 TICs on the market right now vs 582 condos and 462 single-family homes. So the TIC market is substantially smaller. But I think the larger issue lies in the fact that there are many, many owners (more than 2,000, anyone?) who would otherwise like to sell their TIC interests—but can’t. […]

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