I’m often asked, “What is the difference between a TIC and a condo, and what are the pros and cons?” These are big questions, so for the purpose of this column, I will stick to the basics.
A TIC is a tenancy in common. This is a way of holding title with other people who may or may not be related to you. Just remember the “in common” part as we continue.
A condominium is a fully separated ownership from the other dwelling owners, with the exception that there are “common areas” – garages, gardens or decks for example, which are shared with other owners, with no one owner having exclusive ownership.
In a TIC there may be only one master loan on the whole building, where you are responsible for the entire amount of the loan, not just the portion that belongs to your ownership percentage. Alternatively some buildings allow or require individual TIC financing. This type of financing is more expensive in terms of interest rates and fees because presently there are only a few lenders that fund these loans. Even if there is individual financing, keep in mind there will only be one tax bill, with a portion paid by each owner.
In contrast, condos have a large pool of lenders from which to choose. In a condo building, each owner has his or her individual home loan and tax bill.
SOME PROS AND CONS
The sale price of a TIC is generally lower than a condo, which often makes it attractive to buyers. The lower price is because TICs are considered riskier in the marketplace. According to the condominium conversion laws, TIC buildings with more than six units can never be converted to condominiums, and those with fewer than six units must go through the condo lottery, which may take as little as four to five years or more than 20 years. These restrictions will always affect the present and future value of a TIC property and make it a riskier investment.
There is also a genuine risk that when a TIC owner goes to sell there may not be any individual TIC lenders in the marketplace. If institutions cease making TIC loans, where does financing come from for future sales?
Another concern with TICs is a co-owner can suddenly run into financial trouble and be unable to pay his or her portion of the HOA dues and tax payments. In this case, because taxes are due in full, all the other owners would have to pay the missing portion, as well as fund the HOA cash reserves so bills can be paid. Similarly, if there is a group loan, the other TIC members would need to make extra payments to keep the loan current or risk foreclosure.
With condos, individual owners are responsible only for their loans and tax bills and not those of other owners.
Some TICs can be a great value and after careful consideration might be perfect for you. Just be sure before you buy to do your homework so you know the obligations you are taking on as well as the property’s financial status. Of course to be safe, I recommend you always work with a knowledgeable real estate agent.
Stephanie Saunders Ahlberg has been a real estate agent for over 30 years and is one of Hill & Co.’s top 10 salespeople. She can be reached at www.realtyinsanfrancisco.com.
Real Estate Update
TICs versus condos
TICs versus condos