Why a TIC Unit Can Be a Good Buy!

A super cute listing on Wayne Place at #32 that I currently have on the market is located in a very walkable location near North Beach, Russian Hill and downtown. It is priced at $765,000 and has two bedrooms, one bath, and an in-unit washer/dryer, outdoor shared space and parking. And at this price point owning this great home is almost less expensive than renting a comparable property and you get to build equity!

What is a TIC?

While we have had some showings, it is not as active as I would expect considering all that it has to offer. Is it because it is a TIC (tenancy-in-common) property? Some buyers don’t feel as comfortable with TICs, though they should. What they may not realize is that TICs function very similarly to condos, with each owner being responsible for their own unit and shared expenses paid through a Homeowner’s Association. The legal distinction is that the entire property is owned by the TIC co-owners in percentage shares and their right to occupy a particular unit arises from a written TIC Agreement. But for all practical purposes owning a TIC is like owning a condo – at a lower price point.

What is a fractional loan?

The biggest difference is the type of loan you can obtain. In the past TICs were normally financed so that each owner was jointly and severally liable for the entire loan and the entire building was pledged as security for each loan. However, there are separate “fractional loans” for each TIC unit in this building, only signed by the individual owners and individually secured by deeds of trust covering only that owner’s TIC share. If one owner defaults on his or her loan, the lender can foreclose only on that owner’s interest. Unlike group financing, none of the other TIC owners are directly affected by any default. Again, just like a condo!

The fractional loans do have slightly less favorable terms than those available on condos. Although you generally will be able to lock in the rate for only the first 5-10 years, those rates are still very good. Right now, if you so choose to pay a half-point fee up front you can get an interest rate of 3.125% depending on how much you put down. Sterling Bank even allows you to put just 10% down to buy this unit. You typically get more for your money with a TIC than a condo – often more space and often nicer quality finishes when comparing similarly priced properties. This unit is a perfect example of this. It was renovated about 10 years ago and has a number of amenities, like an in-unit washer/dryer, not to mention a Coit Tower view! It is on a cul-de-sac with greater privacy than being on a main street. There is a shared space in the back with a barbecue. What more could you want?:) Contact me at carol.solfanelli@compass.com if you’d like to see it.

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