In urban areas such as San Francisco and Berkeley, TIC (Tenants in Common) properties have emerged as a popular way to make home ownership more affordable for first-time buyers.
TIC Financing San Francisco
- A TIC financing partnership is formed by a group of people purchasing two or more units where each owner (or family) will occupy one of the units.
- Prices for TIC’s are often below those of similar condos, and for that reason they are especially attractive to first-time buyers.
- Most owners plan to convert their TIC interest to an individual condominium at a later date (see the Condo Conversion Checklist), and they assume the value of their property will increase once the conversion is complete.
- In the meantime, each person owns a fractional share of the entire building – that share is based roughly upon the value of the individual unit.
- Eg., if 3 people buy a building for $1,200,000, each unit is valued at approximately $400,000 and each would own a 33.33% interest in the entire building.
- There are costs of both time and money in converting to a condominium. At least $20,000 per unit is required to complete a conversion and the costs can easily be higher than that.
Group TIC Loans
- TIC group obtains one mortgage on the entire property and must qualify together as a group; i.e., all income, assets and debts are lumped together for purposes of qualification.
- Each owner is liable for the entire mortgage, but the TIC agreement protects the owners from many common risks of joint ownership.
- Difficult to predict if you will qualify to purchase a particular TIC unit without knowing the other potential owners’ finances — income, assets, debts and FICO scores must be considered together.
- If one party needs to sell before the conversion is complete, all owners must refinance to bring in a new owner, or the loan must be partially assumable.