What is a TIC?
Why a TIC?
What about a TIC?
Tenancy in Common Units in San Francisco Explored with Kevin+Jonathan
Relatively speaking, a TIC may be anywhere from 10–20% less than a condo.
Likelier to be that combination of a Victorian/Edwardian building and a modern, chrome+glass home.
Better than renting and, depending, potential upside with conversion to condo
Tenancy In Common Units Are An Affordable Way To Get A Property in the City, But It’s A Little More Complicated Than Going to the Lender and Just Moving Right In. For example, You May Need to Call a Lawyer (Eek)
During your property search you will come across a seemingly incredible steal of a deal for a renovated space in an older Victorian and Edwardian shell. You’re excited. You think you’ve found it. How could someone overlook this deal? Did you miss something? Then you look closer again and you’ll see these words: “tenancy in common,” or, “TIC.” What’s that supposed to mean?
Here’s the deal: TICs may look like a condo, feel like a condo and even act like a condo (there’s an HOA, a budget, regular dues and meetings), but TIC units are legally distinct from condominium units. This distinction impacts lending, rental rights, inheritance rights and things like what happens if there’s a default among more. In a nutshell:
- Tenancy-In-Common units — TICs for short — are a hybrid between a single-family house, apartment building and a condominium that are more unique to San Francisco (although they’re popping up in LA and you’ll see the term used when talking about trees growing on property lines). Legally, a TIC property only has 1 title deed for the entire property, no matter how many ‘units’ there are in a building. Houses and condo units each have their own title deed.
- What you’re really buying when you’re getting a TIC is an undivided interest in the entire property. Technically, there’s no percentage split, which is why families may purchase a house or condo as tenants in common. But when you’re buying a TIC unit, you are also agreeing to buy into and being bound by a private contract between all the other owners of the property — the TIC agreement. It’s the TIC agreement that spells out what percentage of the property you’re buying and what comes with that given interest along with what rules govern and, in a lot of cases, what types of financing will work.
- We know it may be confusing but it probably has to do with the fact that you see the word tenant. This is not a renter tenant but a feudal tenant. Don’t worry about this bit of English legal history, rather, the best way to think of how a TIC works is if you think of it as “owners in common,” instead.
- Why do we have these things anyway? TIC unit sales were a market response to San Francisco’s housing shortage and regulatory climate. If a space has its own title it’s usually exempt from most of the Rent Ordinance’s stringent tenant protections, which governs buildings built before June 13, 1979. Also, because demolishing housing in San Francisco is very, very difficult, expensive and time-consuming, developers responded to the market’s strong demand for renovated spaces. This is how you’ll end up with the fusion of old and new — a traditional Victorian or edwardian facade with modern insides with all of the units subject to the Rent Ordinance. At the end of the day, buying, selling, creating and lending on TIC purchases in San Francisco was the result of the efforts of a clever attorney, smart lender and, of course, realtors.
- What you need to know, part 1. Some TIC Because there are far fewer TIC lenders — 4 to 5 depending on when and who moves to a new bank — and because TIC units are subject to rent control and eviction control laws, most TIC units will sell for about 85–95 percent of the price of a similar condominium unit. You have fewer buyers in this realm which will cause prices to be lower.
- What you need to know, part 2. Note, we didn’t say all TIC units sell for less than similar condominium units. Some are quite expensive and are on par or can even exceed comparable condo units because they may become condo units automatically or under the City’s now-suspended condo conversion lottery. Units that can convert into condos will be worth more than those that cannot.
- We’re here to help. We don’t expect you to know all of the ins and outs of this stuff because trying to keep track of all the myriad of factors that determines a TIC unit’s market value can also depend on things that took place with the building years before that you have no connection with. We help our clients navigate through the analysis when the need arises.
The differences between a house, 2 condos or 2 TIC units and an income property can make all the difference in San Francisco real estate prices, potential tenant issues, financing and the potential a property has. So knowing the differences between all of those is something many turn to Kevin Ho and Jonathan McNarry to understand as they guide their clients to real estate success in San Francisco.
So, Why Would I Buy A TIC?
There are pros and there are cons
So, Why Buy a TIC? Ownership is Still Ownership
If various criteria are met that involve the building, its rental history, the ratio of owners to renters and number of units are satisfied then there’s a boost in equity and property value when a building ‘goes condo.’ Why? Unlike houses and condos, only two lenders loan on these purchases and those loans are not the conventional ones either. This means you have less willing, able and qualified buyers to compete for the property. Converting into a condominium can raise market values anywhere from 10-20% depending on the circumstances, location and finish level of a property.
- Owning beats renting. Remember that TICs will appreciate like other properties too, which means that there’s a fair chance that you should recover what you’ve paid into a property when you sell it down the line.
- An affordable way to enter the real estate market as many TICs are more affordable than their condominium equivalents — this is great for folks who want buy their first home but also know they want to upgrade that home within 5-7 years. Why is it more affordable? Because there are fewer lenders who lend on TICs the buyer pool is smaller with less competition
- A potentially great investment opportunity. Depending on the unit a TIC may be able to convert into a condominium unit that has its own title deed and is exempt from the rent control portions of San Francisco’s Rent Ordinance; and lest we forget, TICs straddle…
- The best of both worlds. TICs are located within older buildings in the more popular parts of the City (Noe Valley, Hayes Valley, Pacific Heights, Telegraph Hill, the Mission and so on) but will often contain units that have had the “This Old House,” treatment that combines modern amenity living with buildings with period details and character. Because it’s tough to demolish and rebuild historic buildings creative designers and developers have turned old-facade buildings into fully modern homes on the inside that most often can only be TIC units lest units get removed from rental inventory
- For TICs that can convert, a TIC is really a pre-condo with loads of value just waiting to be unlocked. (Note: the Rent Ordinance applies to original subdividers so you can effect any backdoor evictions
What You’re Really Buying — The Sharing Economy
Going into even greater detail: Instead of getting your own title deed like you would with a condo or a house purchase, when you complete a TIC unit purchase you end up with an undivided interest in the parcel’s single title deed.
The precise space, the effective percentage of the HOA that you’re buying into will be determined by that private contract between the TIC owners we mentioned above that’s commonly referred to as a TIC Agreement.
It’s more likely than not that your TIC Agreement will have been written by one of 3 law firms in the City who all either worked with each other at one point or had lawyers come and go between the trio of firms. Each firm has a different way of preparing their TIC agreements for a given building (there is only one TIC agreement per TIC building, although there may be different versions of the document prepared over time), but the variations are usually more subtle as there is a lot of standard stock features you’ll find in any TIC Agreement (e.g., establishing an HOA, voting rights, allocation of common expenses, budgeting and rental policies among more).
Be Careful, Everyone Has to Sign the TIC Agreement for a Building
Like we said above, a TIC purchase, on its face, is a purchase of an undivided ownership interest in a given piece of real property. TIC agreements not public record but all the owners in a building will have a copy of the document and each will need to sign updated versions over time as units are bought and sold.
Suppose you didn’t sign the TIC Agreement for an established TIC building and your purchase closed, you could occupy any part of the property. Conversely, if future buyers in the building don’t sign onto an existing TIC Agreement, they too may have the right to barge into your unit and take over it. The sheriff would be powerless to do anything at first. Therefore, it’s essential to (1) have a comprehensive TIC Agreement that delineates each owner’s space and occupancy rights within a building – “unit 2A,” for example, which will usually reference a chart somewhere in the agreement that (2) every owner signs (usually done by a document called an ‘Assumption and Release.‘
How Different Are TIC Prices and Condo Prices? Let’s look at the data.
Live San Francisco MLS Data comparing TIC sale prices vs Condo sale prices
More Information: What Are You Missing Here?
Let’s explain what is TIC is by telling you what you don’t get when you buy a TIC unit. When you buy a house or condo, you’re buying a bundle of ownership rights over a piece of real property that is symbolized and communicated to the world by a title deed. That real property, of course, is derived from the sovereign (aka, the people who had the swords who conquered the land and who brought enough order to give/sell/grant land to folks — you know, to the victor goes the spoils).
Those grants were then divided into various divisions starting with townships, sections, fractional sections, rods, down to the parcel which, in San Francisco, is about 25 ft wide x 100 ft deep. For condominiums, the parcels get smaller and smaller with many fitting into the footprint where one house may be. Each parcel will have their own separate legal descriptions and parcel numbers. Each parcel is individually mapped, numbered and on record with the local county assessor, treasurer or recorder’s office and are a matter of public record. Most important, each of those parcels will have its own separate title deed but are subject to restrictions that run with the land in the form of CC&Rs — conditions, covenants and restrictions. See here for more on what you get when you buy a condominium.
- But for TICs the only document that gives you the right to live in your particular unit is a private contract agreement — the TIC Agreement— that is subject to human fallibility. For example, if one owner doesn’t sign the agreement they, in theory, can live in any part of the building and there’s little anyone can do about it. Really.
- Also, enforcing rental restrictions, keeping books and accounting straight can get very murky very fast.
- Last, there are only very limited financing options available and the units are still subject to Rent and Eviction Control regulations, which can be really contentious if condo conversion is anywhere on the table.
The Money Part.
How to Finance A TIC Purchase
A Few Lenders Will Lend on a TIC Purchase or Just Use Cash.
Buying or selling a house or a condo boils down to transfer ownership of a property’s title deed from one person to another thanks to the exchange of money. Because most people don’t have piles of cash sitting around a buyer will go to the open market to see what type of mortgage loan they can afford to finance the purchase. And pretty much any lender will know what a house or a condo is as each will have its own respective title deed. With that common denominator defined, any lender can lend on it, package that loan and sell it as a security on a bond market for example. TICs are unlike single–family home and condo lending where buyers can take advantage of FHA–backed programs and/or draw equity lines of credit in a crowded marketplace.
Instead only certain local banks and one national lender will fund a TIC purchase because they will then package TIC loans together and sell them as part of their own portfolio products on the mortgage markets. TIC lenders may require a larger cash down payment, have more origination fees and/or post-close reserve requirements. While amortized on a 30-year schedule, TIC loan interest rates are usually only ever fixed for 3, 5 or 7 years and will then go to being an adjustable loan after that fixed period (most people just refinance near the end of a given term). (Why only those time periods? Lenders will assume you’re going to condo convert one day).
Historically the only way to finance a TIC purchase was by getting (or joining) a dreaded group loan…. Exactly as it sounds, this is a situation where the owners collectively hold the debt together, which means that you’re all tied to each other too. So if one co-owner skipped town or made a late payment, everyone else on the loan would be on the hook for that absconding owner (we’ve heard of this happening before!) TIC HOAs would guard against this scenario by requiring large default funds that each owner would have to pay into when buying (getting back their contribution when they sold or if the building went to fractional loans)
The market responses with fractional loans. More recently lenders began to offer individual fractional loans in the late 2000s as a market response to make TIC sales more appealing. Fractionalized loans will act to insulate you from another TIC owner’s potential default or late payment; i.e., your credit score wouldn’t be lowered because your neighbor TIC owner forgot to pay their mortgage bill on time. TIC loans have other requirements about partition sales and post-close reserve amount requirements that your lender or lawyer can explain. Importantly, though, TIC owners can claim the mortgage interest deduction as well in most cases. And property taxes are also typically deductible (which are prorated between the owners as based on when they bought and their initial purchase price).
The need for HOA management and bookkeeping should be pretty obvious by now, right? We recommend that for buildings with 3 or more units that an HOA brings in outside help to keep track of all this… well… stuff (see below) for recommendations.
The TIC Lenders
There is a core group of about 10 lenders who do TIC loans and, depending on the market, they’ll be all kinds of busy or not busy. Ask us for details and remember this information will oftentimes change without notice.
Henry T. Jeanes
Los Angeles Regional Sales Manager | Assistant Vice President | Sterling Bank & Trust
CELL 415.990.5620 | [email protected] | (NMLS #657755)
For years, Henry and his team were the leaders in San Francisco TIC loans with Sterling. Perpetually busy, Henry and Sterling have branched out to LA now too.
External Home Loan Consultant | Patelco
TEL 925-577-0578 | [email protected]| (NMLS 787640)
Having worked at Sterling for many years with Henry, John has developed his book of TIC business with various lenders since and is now at Patelco.
In addition other lenders who have done (or do) TIC loans include:
- The Bank of Marin
- The Bank of San Francisco
- Redwood Credit Union
Just as there is a core group of lenders who do TIC loans there are about 5-10 lawyers who do most of the TIC work in the City (I think many of them used to work with or for the father of the TIC-as-we-know-it in San Francisco, Andy Sirkin, a lawyer who splits his time between San Francisco and Paris. Oui!
The above references and referrals are done for information purposes only and is not necessarily an endorsement of one firm over another. Do your own informed research especially in a complicated part of real estate such as this.
Hi, we’re Kevin Ho and Jonathan McNarry of Vanguard Properties in San Francisco, California. We’re partners in life and in business. Together with our big black Labrador retriever, Raffi, we are top producing Realtors in San Francisco’s competitive and valuable residential real estate market.
We truly love what we do and are passionately committed to our clients, their needs and advancing their interests. We represent both buyers and sellers with many repeat clients but we are always expanding our client base. Our belief is that by working with you you will make better informed decisions in this most important of areas of life.
We invite you to contact us to learn more and to start your success story now.
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Real estate is always changing and evolving. Because it’s based on people and people are, well people. Therefore, real estate can be complex and as fickle as it is surprising. And while the information and knowledge on this site is considered to be accurate and correct, it cannot be warranted. Market conditions in San Francisco, in California, and the world can change with a tweet or a sneeze and is beyond anyone’s control as hard as we try.
In San Francisco, things like local, state and federal tax regulations can change quickly leading to big implications that take time to be realized or appreciated. Other factors like rent control rules, eviction control, lending practices and standards, building and zoning regulations are just a few of the other things like pandemics, forest fires or mortgage rates that can change with little or no notice. All of these things and other intangible factors may well impact market values and performance. So keep your wits about you and keep in touch with us.
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Kevin K. Ho, DRE 01875957/SBN 233408
Jonathan B. McNarry, DRE 01747295
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