TICs: Trending Toward Tumult

Popular among first-time home buyers in San Francisco, tenancy-in-common (TIC) ownership traditionally lets two or more individuals share building ownership through a group loan. You don’t technically own your unit in a TIC arrangement–just a percentage of the building. The goal is to ultimately condo convert the building, so everyone can officially own their unit. The conversion process is complicated, lengthy and fairly expensive, so the cons sometimes outweigh the pros in TIC situations.

There’s a fair amount of risk in TIC ownership–especially when dealing with 3-6 units–mostly related to you being tied to other owners with respect to paying mortgage, property taxes & other expenses. And if someone wants to sell his or her TIC interest, the entire group loan has to be refinanced with the introduction of a new TIC partner.

Therein lies the rub in the new lending environment: Everyone has to qualify for the new loan. In the past, this hasn’t been too much of a problem, as loans were easy to obtain for the most part. Now, however, I’m hearing of TIC partners not being able to qualify for a refinanced loan due to tighter lending restrictions. This is a real problem for the TIC interest sellers, as they will have to work with their group to facilitate a new loan. In other words, those partners who can’t qualify for a new loan can’t simply be forced to sell. The seller is on the hook.

I’m shying away from recommending TIC arrangements in 3-6 unit buildings, at least until the loan market shifts toward the positive. It’s increasingly challenging to convert larger buildings to condominium status, so you’re looking at years of TIC ownership before (or if) that goal is ever reached. And though there are widely used “fractional” loans available–wherein TIC partners can obtain individual loans–I have reservations on those in terms of future availability

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Get in touch:

Eileen Bermingham

Corcoran Global Living

415.823.4656

eileen@insidesfre.com

DRE# 01352627

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