TIC vs. Condo: San Francisco Homeownership Comparison

So you have decided to step into San Francisco’s Real Estate Market. You get excited with the idea of finally owning a property in the city and getting out of the monthly rental. A condo unit, perhaps? And while you are browsing for your ideal property, you come across this incredible listing that ticks all your wishlist at a relatively lower price point! But as you read the description, you encountered the word “TIC” or “Tenancy-In-Common.” If you have not heard about this property, it’s best to continue reading. You can easily get lost and overwhelmed with resources online if you navigate from one article to another.

It’s not always obvious whether the property is a condominium or a Te

 

 

 

 

 

nancy-In-Common (TIC) when you are searching for properties online. In most ways, a TIC may look and feel like a condo unit, especially with its type of featured properties and management processes. Although both properties are great alternative options to single-family homes, they have significant differences that you should consider before making a purchase. In this blog post, we will review the unique characteristics between TICs and condominiums that can guide you in making an objective and more informed decision.

What is a TIC?

A Tenancy-in-Common (TIC) is a type of shared ownership in which two or more people own a single property. Each owner has an undivided interest in the property, meaning they own a percentage of the entire property rather than a specific unit only. For example, if the TIC group purchased a building with ten (10) units, no one is entitled to any exclusive unit. Instead, you own a portion of the whole building equivalent to your percentage interest. These percentages are agreed upon between you, your co-owners, and your lawyer before the acquisition of the property. Afterward, it will be stipulated in the TIC agreement, a legally binding document signed by all parties involved.

But unlike condominiums, a sale of TIC properties does not come with a certificate of title. Instead, owners only have a TIC agreement to support their claim of ownership.

What is a Condominium?

Condominiums are popular properties in today’s market wherein each unit of the building is individually owned. Unlike TIC, where owners have no specific ownership, condo owners can choose their preferred units and location. In fact, before the actual purchase, condo buyers have already discussed their requirements and interest with their agents. Once the sale is closed, each unit owner will have a specific deed to their unit and enjoy exclusive rights to sell or mortgage it independently. Condos are popular with people who want to own a property but do not want the responsibility of maintaining a single-family home. 

Differences Between TICs and Condominiums

  • Property Ownership

One of the most significant, and probably deal breaker, differences between TICs and condos is property ownership. As mentioned above, owning a TIC unit does not come with a deed of sale. Instead, everything that has to do with the property is established in the TIC agreement. Moreover, you will share ownership and responsibilities with multiple individuals regardless of whether you know each other. So when a co-owner fails to fulfill their obligations, everybody is affected.

IIn contrast, condo owners are given a certificate of title once the transaction is complete. With this title comes your exclusive rights as a condo owner whose property is independent of everyone in the building. You can do what you want with your space as long as you follow specific building rules and regulations imposed by HOA (Homeowner’s Association). And while individual owners are responsible for their units, the condo association is responsible for managing and maintaining the common areas.

  • Financing Flexibility

Securing financing for TIC property is more challenging compared to condo units. Most lenders considered TIC a risky investment due to the nature of its shared ownership structure. On the other hand, financing a condo is more straightforward and similar to financing a single-family home. As a result, more lenders are willing to offer financing. 

Let’s take a look at how these two (2) properties differ in several financing aspects:

  • Mortgage Options: In the past, the only way to secure financing for TIC properties is to secure a group loan. Fortunately, financial institutions have become more accepting of TIC properties, and interested TIC buyers can now avail of fractional financing. This means that each buyer can now secure their own financing, and the mortgage terms may vary based on your percentage ownership of the property. On the other hand, interested condo buyers can obtain mortgages on their units with any available financing. But condo associations may also take out a master mortgage to finance the common areas and shared expenses..
  • Down Payment: Generally, the amount of downpayment required for TIC properties is at least 20% of the total price. But some lenders may require an even higher down payment, especially with limited financing availability. In contrast, down payments for condos are typically more standardized. The condo board usually requires at least a 10% down on the property, while luxury condos with extensive amenities require up to 20%.
  • Interest Rates: Interest rates usually vary depending on the loan terms and downpayment. For example, a 30-year term for a condo property will incur approximately 6.38% APR, while a 5-year term will incur only 6.12% ARM at a 20% downpayment. In contrast, interest rates for TIC loans can be higher due to their perceived risks.

  • Building Maintenance

How would you like to keep up with property repairs and maintenance? In a TIC, everything that concerns the property is shared between the owners. So when it comes to maintenance, not only will you have to maintain your assigned unit but also the common areas in the building, including necessary repairs and upgrades. 

Meanwhile, condo owners are only responsible for maintaining their own space. The HOA or condo association is responsible for maintaining the common areas, including exterior repairs and needed improvements. The condo association is funded through monthly condo fees, typically set based on the projected expenses for maintaining the property.

Decision-making process 

As you may have already guessed, TIC owners always make joint decisions regarding issues and concerns arising from the property. In some cases, owners create decision-making authority or a board of directors for a more organized and systematic meeting. But ultimately, all owners have a say in significant decisions affecting the property. Although it is a good thing that everyone has equal rights, complications can arise when owners have disagreements or differing priorities, which can complicate the decision-making process. 

In a condo, decisions are made by the condo association. Each unit owner has a vote, but the number of votes is proportional to the percentage of ownership. Owners may have some input into decision-making through meetings or other forms of communication with the condo association. But the association ultimately has the final say on major decisions affecting the property.

Resale  Value

Oftentimes, home buyers are motivated to purchase TIC properties hoping to convert their unit into a condo. Unfortunately, not all TIC can successfully convert, which can affect the unit’s resale value down the line. In this case, reselling a TIC can be more challenging than reselling a condo. For one, TIC has no specific deed for a particular unit. Thus the sale must be structured as a TIC sale, which can be more complicated and take longer. And as we know, a TIC price has a lower value than a condo price. You also have to consider the guidelines and restrictions set in the TIC agreement regarding the transfer of ownership. Sometimes these requirements may include the new owner to be approved first by the other owners.

But you won’t experience these types of complications in a condo resale. It is simpler, just like selling a single-family home, because each owner holds full ownership of their unit. Condos are also typically easier to finance than TICs, which attract buyers needing a mortgage to purchase the property. Finally, condos tend to have fewer restrictions on the transfer of ownership, making it easier to find a buyer and complete the sale.

Which is Better for You?

Now that we have showcased the unique differences between a TIC and a condo, we hope you will have a more objective and well-informed decision in choosing which property is best suited for you. So if you’re looking for an affordable way to own a property in San Francisco, a TIC may be a good option. Although you just have to be comfortable sharing ownership and decision-making with multiple individuals. But if it’s something you don’t see yourself doing and you want more control over your property, a condo may be a better choice.

Whichever the case may be, it is essential that you work with a knowledgeable real estate agent who can help you navigate the process. Aside from the points discussed in this blog post, they can also help you better understand the differences between the two properties, evaluate your financing options, and find a property that meets your needs and budget.