TIC's (Tenancy in Common) basics

TIC stands of Tenancy in Common which most of the country just sees as one of the many ways a married couple can hold Title to their home. But in San Francisco it's become a way for individuals (or couples) to buy apartments in building's that are not Condos. In most of the rest of the country, converting an apartment building into Condos is a "relatively" easy process. In San Francisco, it is anything but easy. Condo conversion is severely restricted here, so buying via Tenancy in Common has become the only way for individuals to purchase exclusive use of an apartment in a building that looks, acts and feels like a Condo, but isn't a Condo (and may never become one).

To get a fully detailed legal primer on what TIC's are, you should visit either http://www.g3mh.com/articles.htm or http://www.andysirkin.com/HTMLArticle.cfm?Article=1

This post is not intended to be legal advice, and given how often things change, this post could be severly outdated by the time you read it. So this post is simply to alert buyers to what the heck a TIC is when they see it come up time and again in their general searches for apartments to buy.

The #1 reason I hear from Buyers about their interest in TIC's is that they are cheaper than Condos. Unfortunately, they are cheaper for several reasons that many buyers don't want to deal with, or can't. One is that often times the downpayment requirements are for 20% or more, whereas with Condos many buyers can get loans that require 10% or less cash. The other big issue for buyers is that TIC's require you to go on the same loan as the other buyers (or current owners) of apartments in the building. In a condo you get your own loan. In a TIC you get a loan with every other owner/buyer. In a 6 unit building that means you've got 5 other parties who share loan payments with you. There are several banks that have come up with individual loans for TIC buyers recently, but these generally require higher down payments, and have higher interest rates. Over time, these loans may get better and better, but for many these loans aren't all that attractive just yet.

So in general, if you don't have a good downpayment, and you don't care to deal with others for your loan, then TIC's are most likely not for you. On the other hand, TIC's have become so common in San Francisco that they're starting to look and feel like Condos more and more. You will or should have a TIC agreement and usually all the house rules that you get with Condo associations. The TIC agreement spells out what happens if someone defaults on their loan. And in all buildings with 6 or fewer apartments, you have a chance to Condo convert some time in the future.... at least for now. The city's board of supervisors always seems to be coming up with ways to limit or eliminate Condo conversions, so again, visit the above two sites for much more indepth information on TIC's, and for more questions or concerns, consult one of the attorney's that you'll find at both of the above sites. And you should also keep in mind, that while a Condo allows you to get your own loan, you still share common areas and neighbors and have an HOA board making decisions for the building.

So.... TIC's are cheap because they are hard to understand, they often require more cash, you often pay higher interest rates, the city seems to hate them and makes owning them more difficult when they can, and sharing ownership with people you don't know just doesn't work for some people. So if you like TIC's, keep the above in mind when you try to re-sell it down the road. The pool of buyers is likely to be far less than a comparable Condo's pool of buyers. On the other hand, if you want to own an apartment for 5%, 10% and even 20% and 30% below comparable Condos, then TIC's are the way to go. In the sub $400,000 price range TIC's are probably your only option. And in all higher price ranges you'll get a bigger, nicer TIC apartment than a similarly priced Condo apartment.

Remodeling - buy for less, sell for more

Buying a home for less can be compared to buying a car for less. Buy last year's model, and be willing to walk away during negotiations. Last year's model can be just that. In the SOMA/South Beach/Mission Bay where all the new construction is going up, you can buy a condo in a building that was "hot" last year, or 5 years ago. There is so much new construction, that there is a glut of inventory, and older condos aren't as interesting to most buyers. But this year's new construction is next year's old news, so why pay a premium when it will just be old next year?

Most of the rest of the city where there is hardly any new construction, you can look for non-remodeled, older condition homes. The trick is to find something that looks terrible, but is structurely sound. A home that smells is a perfect example. Most buyers just walk out. But most smells can usually be eliminated by getting rid of an old carpet and repainting and cleaning up.

When it comes to remodeling, you must think about whether you are remodeling for yourself, or remodeling to sell at a profit. A recent Seller of mine did a $100,000 remodel that was entirely to her taste, and not necessarily what the majority of Buyers would want. I estimated she got about $20,000 in value out of her remodel, and then she needed to sell 1.5 years later so she barely enjoyed her remodeled home. She probably could have spent $20,000 on her remodel, and gotten $30,000 or $40,000 out of it has she done it in a more generic way.

So go ahead and get hardwood floors, but you can buy good looking ones that cost less, not the highest end, and still get full value out of them. Get your home painted just before you sell, but find the cheapest painter, not the one who says he's worth more, because he really isn't when it comes to selling the home. Don't get the highest end appliances for your kitchen, get ones that look good, but cost less. Don't get custom granite counters, get the ones on sale. Don't change the structure of your home unless it will dramatically improve the value of your home.

Your goal is for it to "show" well, and cost you the least possible. When you buy, look for homes that just need these cosmetic upgrades, and find the cheapest ways of getting the work done. Then spend a couple of thousand dollars on staging, and that will make the home look even better, and sell for more. Again, take the opposite advice when buying... buy unstaged homes, that need paint. They will sell for less even though their value is virtually the same as a staged home that has been newly painted.

Condo vs. Single Family Home?

There is much to consider when deciding whether to buy a Single Family Residence (SFR) or a Condo. Size and space is one, which leads to a cost difference too. In general, Condos are much cheaper than homes, partly because you can't find 1 bedroom SFR's, and few 2 bedroom SFR's whereas these are the most common Condo sizes. But SFR's are more expensive mostly because you get much more space in an SFR even when they're listed as the same size as a Condo. For example, a 2 bedroom, 2 bath, 1500 SqFt Condo is going to be smaller than the same SFR where the SFR usually has a garage or basement area, maybe an attic and a yard, none of which are included in the Square Feet. Plus you get to store extra items in your garage or anywhere you choose.

The same can not be said of every condo where you may not have common area space, you may not have your own storage area. The rules may even say that you can't store anything in your parking space except a car. Not bikes, not anything.

So why buy a Condo? Again, they are usually cheaper. A 2 bedroom condo in District 7 of San Francisco (Marina, Pac Heights, etc) averages about $800,000. A 2 bedroom SFR is rare in this area, and probably starts at $1.2 million. The downsides of condos are that you share walls, may have a neighbor below you, and/or one above you.

If you can find a top floor Condo with as many as 3 un-shared walls you have a lot less noise or nuisance issues to worry about. Condos with "deeded" storage ("deeded" means you own it, you take title to it with your condo) will add to convenience and value and size. A shared yard, or common roof deck is a nice to have, but it not quite as valuable as your own yard or deck in your own house. However, if you can find all of those things in a Condo, while it will sell for more than other condos, it will still be cheaper than an SFR.

With condos you also don't have to take care of any of the common areas, most condos hire vendors to do landscaping, cleaning and repairs. Of course you also have forced payments, called HOA dues (Home Owners Association) to pay for common area expenses, including building insurance, but you'll end up paying similar amounts in your own home.

So size and space, vs. cost are things to consider when deciding whether or not to buy a Condo or an SFR. When using internet search tools to find homes, be sure to pre-select one or the other in your search like you can at www.SF-MLS-Search.com/welcome.php


An Educated Buyer = a Confident Buyer

When I represent Buyers, my first and continuous goal is to educate them on "their" market (the areas and homes they want), on the Buying process, what to look for in homes, the Offering process and more. Many Buyers today want control over the process, so I also offer the most advanced internet tools on the market so they can educate themselves as much as they want. Why is knowledge so important? It might seem like an obvious answer, afterall, everyone knows the "knowledge is power" axiom. But in an expensive real estate market like San Francisco, knowledge is also confidence. The "average" property in San Francisco is $750,000. But if you're looking in some of the most sought after neighborhoods like Pacific Heights, Russian Hill, Noe Valley, etc, $750,000 is practically entry level, so you're looking at $1 million and much higher. "Buyer's remorse" at these price points can be severe. So what knowledge is the most powerful when buying? I'll attempt to list the key things here:

1. Market trends and conditions for "your market" - if you want a Noe Valley 2bed 2bath Condo, then you ought to find out how many sell per month, the average price per Condo, the average size in SqFt, the average price per SqFt, the average Days on Market (DOM) it takes before they sell, and how much they sell for vs. the "asking price".

2. You can take the above a step further and see how these above numbers have changed from year to year, or quarter to quarter. Has the market picked up, or slowed down?

3. How many For-Sale homes matching your criteria are on the market right now, vs. those that are in contract now, and those that have sold in the last couple of months. If there are many more listings than sales, you've got a slow market, but if you only have a couple of For-Sale homes to look at with a bunch in contract, you know you need to act quickly when you find something you like.

4. How much you can afford - hint, speak to a lender before doing any serious house hunting or you'll be wasting your time, or worse might miss out when an opportunity arises.

The above are just some basics that if you have, you'll have an edge over less educated Buyers, AND will give you the confidence to know when something really is or isn't an opportunity. It would be a shame to find out a month after moving in that you over-paid by $50,000 or even $10,000. It's also a shame when you under-bid on a $1 million property by a "mere" $10,000 when you would have gladly spent that to get that particular home.

A good Buyer's Agent will not only do the above research for you, they'll analyze and interpret the data, they'll prepare a new report everytime you find a home you want to make an offer on, and they'll KNOW that only through a very thorough education process will you feel confident in your decision, and great about your new home many months or years after you move in. Good data, and a great Buyer's Agent, are worth their weight in gold.