4 Things that Differentiate ​​TICs from Condos

Tenancy in Common or “TIC” is a lesser-known real estate asset that establishes a method of creating a “mock subdivision” for a property with multiple dwellings on a single lot. There are tens of thousands of TICs in San Francisco alone, and they have also been recently introduced to Los Angeles. We believe you will be seeing more of these property types hit the market.

Governor Gavin Newsom’s signing of Senate Bill (SB) 9 opened up statewide approval for multiple duplexes on a single-family zoned plot of land and took effect in January 2022. TICs would make up the units within these duplexes. TICs are similar to condominiums but are often seen to be around 10–20% cheaper, which means that a potentially more affordable version of a condo could be spreading throughout California real estate.

Let’s dive into four things that make TIC properties different.

1. Title

For starters, the way you hold the title as a TIC owner is different. The traditional way people hold title is by holding the entire title of the property. Condominiums are the most similar to TICs, but the owner holds title to the specific unit in which he or she is residing. For TIC’s while also residing in a specific unit — you own a percentage of the building and there is one title. So you will not have a separate title for the unit in which you are residing. For example, if you buy a TIC in a five-unit multi-family building, you will likely own close to 20% of the entire title.

The percentage you own will already be determined contractually and the deed of the building will show your percentage of the entire building. Since there is no title associated with a unit like with condos, a TIC owner is given the right to use their unit from a legal written contract signed by all co-owners called a TIC Agreement. It is crucial to read this document carefully to ensure that you are legally covered. We will dive into the intricacies of a TIC agreement in a future article. Stay tuned!

2. Available Loans

The most known and used loan type is a 30-year fixed-rate loan, however, TICs are different as a majority of lenders only offer fractional loans with 7 to 10-year adjustable rates. There is currently only one TIC lender in San Francisco that offers a traditional 30-year fixed-rate loan at 20% down and that is All Cal Financial.

Fractional loans tend to be the most common type of loan available for TICs however, they tend to have higher interest rates, higher down payments, higher monthly payments, and fewer choices of lenders and loan types. With there being fewer lenders and loan types, you will want to get acquainted with the ones available in your area.

There are eight TIC lenders in San Francisco:

• Redwood
• All-Cal
• Bank of San Francisco
• Patelco Credit Union
• Bank of Marin
• Sterling Bank
• NCB
• Meriwest Mortgage

Each lender has specific standards to qualify for a fractional loan. For example, some will not lend on units under 600 square feet and others will not lend on buildings with an Ellis Act still on the title (past 10 years). An Ellis Act is a type of tenant eviction in San Francisco. The amount for the downpayment fluctuates between 20% to 25% depending on the financial institution.

If you are in Southern California, it is important to note that as of writing this there are only two lenders who offer fractional loans to TIC owners: Sterling Bank & Trust and NCB.

3. Rent Control

If you are planning on using a TIC property as an investment property, rent control is an important factor to consider. In California, San Francisco cannot impose rent control restrictions on single-family houses, however, it can for condominiums and tenancy in common.

Condominiums, specifically in San Francisco, are covered under the state of California’s rent control rules. And as of January 2020, California does not allow rental increases of more than 5% a year. Given TIC’s 40-year history in San Francisco, TIC’s fall under San Francisco’s rent control. As of March 2022, rent increases are limited to 2.3% annually.

TIC’s are a newer asset type in Los Angeles but most are also rent-controlled if built before 1978 and have two or more units. The city of Los Angeles restricts rental increases to between 3% and 8% annually, depending on inflation. In March 2020, an emergency order signed by Mayor Eric Garcetti was enacted to restrict landlords from any rent hikes until 2023 and possibly beyond.

4. Property Taxes

Every homeowner needs to pay property taxes, however, TIC owners have an extra step when it comes to paying for their property taxes. Single-family homeowners and condo owners can directly pay the county since both have their own titles. Since a TIC owner only owns a specific percentage of the property, it is not possible to just pay that portion since there is only one tax bill. That said, many TIC’s have a Homeowners Association or “HOA” that pays a bookkeeper. That bookkeeper is responsible for compiling all the owed property taxes for the entire property from the TIC owners and paying the county. To put it simply, while owners in a condominium pay their property taxes individually, the property taxes for owners in TICs are paid by one check.

However, there is a catch. As a TIC owner, in some situations, you are not paying for the percentage that you own of the overall parcel’s assessed value, but for the assessed value of your unit. This is dependent on the agreement already set in place. In most cases, you pay for the assessed value of your unit. For example, if you recently bought a TIC for $800,000, you are paying based on that assessed value even if the other owners’ units were assessed at $500,000. If you do not pay your portion of the property taxes on time, the other TIC owners can either sue or force you to sell your unit.

Takeaways

While there are more intricacies that come with TIC’s, there are four main things that you should do if interested in a TIC.

1. Do plenty of research before buying a TIC.
2. Work with a good lawyer and realtor to fully understand what you are getting yourself into.
3. Take the time to select your lender carefully.
4. Understand the rent control legalities if you are planning on using a TIC as an investment property.
5. If you hope to invest in a TIC to later on convert into a condo, make sure you understand the requirements for condo conversion. You can learn more about TIC to condo conversion here.

We, at Atlasa Real Estate, are incredibly pleased with TICs becoming commonplace in the Bay Area and Los Angeles. TICs are beneficial to the housing market because they are 10–20% cheaper than comparable condos. This allows homebuyers who otherwise would not be able to afford homes in expensive neighborhoods to gain access to a great home in a desirable neighborhood. Once someone understands the intricacies of TICs, it becomes obvious what a great alternative option they are for a first home purchaser.

At Atlasa, we hope to provide a diligent, positive experience for our clients, be it buying a condominium, property, or TIC. For more information or to get in touch with an Atlasa agent, please email us at deniz@atlasa.com or check out our website at www.atlasa.com.