Tenancy in common (TIC) VS Condos in San Francisco
What is the difference between a condo and a TIC?
Which one is right for me?
A Tenancy in common or a TIC looks the exact same as a condominium. Both have an HOA, both have common spaces, both usually have a garage. The difference is in the details: the ownership and the financing.
Let's first look at a condo because it's simple and straightforward.
A condominium, no matter if it has 2 units in the building or 200 is simple. You own 100% of your unit and rights to use the common spaces, which you pay for in your HOA fees. Every owner gets their own property tax bill which means that the city sees your condo as its own separate parcel which needs to pay property taxes. You are in no way tied to the other owners except for the HOA management and fees, and common spaces.
Simple. Easy.
Now let's look at a TIC (tenancy in common)
In contrast, Tenancy in common buildings are exactly what the name suggests. Instead of owning your unit with rights to use the common space like a condo, you own a percentage of the entire building with the other owners, with exclusive use of your unit. The price you pay for your unit is based on the percentage of ownership you own, so if your unit is 2000 sq ft you own more of the building than an owner with a 900 sq ft unit. But none the less you are all partners with one property tax bill and until recently 1 loan. It was horrible. Everybody was affected by the actions of each person on the loan. That has since been changed, now we have fractional financing, where everyone has their own loan based on the percentage of ownership in the building.
That perhaps is the biggest difference. How you own your unit and the financing.
Most lenders do not lend on a TIC building. Forget about traditional loans. There are only 2, maybe 3 lenders who will lend on a TIC. Also they require a higher down payment, something like 35%
Here is a quote from the blog from my personal landlord tenant attorneys in SF talking about fractional TIC financing.
“With individual, or “fractional”, TIC mortgages, each TIC owner obtains a separate, independent mortgage secured only by his or her ownership interest in the TIC property. Without a group mortgage, a late payment by one owner does not damage the credit history of the other TIC owners, and while a loan default by one owner may have some consequences to the TIC group, risk of foreclosure against the non-defaulting TIC owners is not among them. TIC mortgages have higher interest rates and less favorable mortgage terms.”
The other huge difference of course are tenant laws which in San Francisco are already terrible for landlords and TICs make them worse.
General over view of landlord/tenant rights in a TIC vs condo?
Disclaimer, obviously I am not a lawyer, this is not legal advice in any way. This is just what I have learned over the years and experienced personally.
Some free resources for tenants and owners are the SF rent board which you can actually call to get information from them whether you are a tenant or owner and want to know your rights, generally
Another huge disclaimer. If you own property, any type of property in SF YOU 100% MUST HAVE A LOCAL REAL ESTATE ATTORNEY EVERY STEP OF THE WAY.
Be very careful before you get a tenant into your property. If you get a tenant into your property with a lease or without, tenant rights apply if they occupy the property for 30 days or more. Generally you will not be able to get them out without a lawsuit and throwing a bunch of money at them, the building being forever recorded as having evicted tenants, plus you need to disclose this when you sell/ oh and also attorney fees. Duh
Here's another paragraph g3mh about this:
“San Francisco Rent Control rules can affect the ability of TIC owners to occupy their new homes if tenant occupied. Only one “Owner Move-In” eviction is allowed per building, Evictions of “protected” (elderly, disabled or catastrophically ill) tenants are prohibited.
If you do not do an owner move in eviction but do an ellis act eviction, you can never rent the building again... and the property’s condominium conversion potential may be compromised.
Moreover, faced with pressure from tenant rights advocates, some San Francisco lenders have announced that they will no longer offer mortgage loans where tenants have been evicted under an Ellis Act eviction. Scary
Rent control overview for a condo
A condo built before 1979 with a tenancy starting before 1996 has all the rent laws in the book (rent and eviction control) the worst
If rented after 1996 then it has eviction protection for tenants but no rent control.
A condo built AFTER 1979 has no rental or eviction protection for tenants
It's all very confusing. But these rules don't apply to a TIC, all TICS have rent and eviction controls to the max, sorry
So if you are buying a condo or a tic for long term purposes and think you will rent it out one day, have a consultation with an attorney before you do
What is an HOA?
Homeowners association is the governing body of your building.
The home owners association is made up of all the owners in the building who pay a monthly fee to cover expenses. Sometimes it is professionally managed by an outside company and sometimes the owners manage their own building.
Monthly(ish) HOA meetings are held to discuss topics relevant to the building, meeting minutes and notes are recorded, a bank account is opened with funds to pay joint expenses (garbage and water most commonly) and any special assessments that happen once in a while like new exterior paint or a new roof. There is usually an HOA manager or president.
What are HOA fees?
Hoa fees are a monthly fee every owner in the buildings pays. Because each building has expenses, like a house, these fees go toward those expenses.
How much are they?
This is determined by the building. 2 factors are the monthly expenses and how much are in the reserve account.
Some buildings have low monthly expenses, maybe bare minimum like garbage, water, insurance. Some buildings have all the bells and whistles like an elevator, doorman, private security, roof deck, gym, conference rooms, cool lobby…The more things you pay for each month the higher your HOA fee.
What are reserves?
Reserves are what the HOA has in their bank account for a rainy day. Lets say for example it was just discovered that there needs to be a new roof. The HOA (whether its a management company or the hoa president) will get bids for the work to be done by a licensed roofer and take the money needed from the reserves in the account. If not enough is in there then there will be what is called a special assessment, basically all owners must pay a bill. Sometimes the monthly hoa fee you pay covers expenses and a bit more to have reserves in an account. No one likes a random $5K bill.
Can your HOA fee go up?
Yes, ever hear of inflation?
HOA fees can affect your mortgage
If you are getting a mortgage to buy a condo or TIC the HOA fee will affect it.
Example, you can be pre approved for $1.5 purchase price, 20% down and only $800 HOA. if you find a building you love with an HOA of $1,200 your lender will need to reassess if you can pay $1.5 or if you cant afford it. Make sense?
Can you convert a TIC into a condo?
The answer is yes and no.
Back in the day the city of San Francisco had a “lottery system.” Meaning any TIC building could enter this system and be randomly selected to condo convert. This took many months, surveys, lawyers to draft the appropriate documents and money of course but it could be done. Instantly raising the value of the building. But San Francisco ended that.
Now only a 2 unit building, that is owner occupied, and has never had a history of evictions can condo convert.
Story time
A couple of years ago I helped a developer buy a lot of land in the bayview district of San Francisco. His plan was to build a 2 unit building and condo convert the building to 2 condos.
A quick fact, a 2 unit building is a 2 unit building and each unit cannot be sold separately. You must legally make them TICS or condo convert using an attorney if you want to sell separately..
So at the same time as the developer was building the building he was doing the condo conversion process. 2 years and thousands of dollars later we sold 2 condos.
In conclusion,
Condos are different from TICS. To me, a condo is much less hassle if you are thinking long term. However a TIC is a great option for a small pool of people, especially if you have the option to condo convert.
Here are a few articles about TICs from some awesome attorneys here in SF who specialize in tenancy in common buildings.
Some interesting articles
