What is a TIC (Tenancy in Common) ownership and how does buying in a TIC compare to buying ownership in a condo?
TIC’s are often compared to condo’s. There are similarities and differences.
In California the TIC ownership model with individual “space assigned occupancy rights” is the TIC model most often compared to condos. It started in Northern California nearly twenty years ago due to housing scarcity and in the Bay Area it has matured, is commonly accepted and has comprised, at times, up to 30% of that market. There are many lenders available for TIC buyers in the Bay Area. Among them is Sterling Bank. Sterling is also the early mover in TIC lending in Los Angeles and is the preferred lender for the TIC at 500 North Bronson. https://www.sterlingbank.com/home-loans.html
It is important to note that the 20 years of growth in TICs in Northern California has created strong, tested, legal formation documents for the emerging Los Angeles TIC market and for its developers, buyers and lenders. Sirkin-Law is the firm that was the pioneer in developing these documents. Andy Sirkin has prepared the TIC documents for the TIC at 500 North Bronson. https://andysirkin.com/
Of note: In the Bay Area, the early TICs were historically purchased at a discount in sales price compared to condos but as the market matured that discount shrunk to virtually nothing affording the early TIC buyers’ additional appreciation as the overall condo market appreciated.
In the Los Angeles area the TIC ownership model is new to the market but housing scarcity is again driving the spread of this form of ownership quickly as early developers and buyers see the opportunity of TIC ownership. Though not quite yet commonly understood, market demand for TIC’s in LA has increased awareness, brought education and created understanding along with growing acceptance and sales. 2019 is seeing a projected 5x multiple increase in TIC sales over 2018 in Southern California.
Of Note: Though there are multiple TIC lenders in Northern California, and increasing demand In the Southern California, Sterling Bank is currently the only lender in the LA market.
KEY SIMILARITIES AND DIFFERENCES IN TIC’S AND CONDOS IN THE LA MARKET:
In a TIC each buyer will “own” title to a fractional interest or “percentage” of the entire building “in common” with the other building owners. They will be legally “assigned” the exclusive right to “occupy” the “air space” inside the walls of a specific defined “unit” and be subject to the building’s “Tenancy in Common” agreement. The buyer will also have the “non-exclusive” right to use all the other “common” areas of the building as defined by the Tenancy in Common Agreement.
In a Condo each buyer will “own” title to the “air space” inside the walls of a specific “unit” they “occupy” in the building and be subject to the buildings HOA agreement. The buyer will also have the “non-exclusive right to use all the other “common” areas of the building as defined in the HOA agreement.
Both TICs and Condos have Associations with rules and dues governed by their respective agreements which require owner participation and ongoing management. The condo agreement is a recorded document where-as the TIC agreement is not.
Property taxes are assessed and billed under one Tax ID in a TIC and are collected proportionately from each owner monthly and paid semi-annually by the TIC’s Homeowners Association or are impounded monthly with the buyer’s monthly loan payment and paid semi-annually by the lender.
Property taxes are assessed under separate Tax ID and billed separately to each owner in a condo or are impounded monthly with the buyer’s monthly loan payment and paid semi-annually by the lender.
Loans to purchase Condos are generally available from multiple lenders in Southern California and interest rates are somewhat lower due to competition.
Loans to purchase TICs are currently available from only one lender, Sterling Bank, in Southern California at this time and interest rates are somewhat higher.
How are TICs financed?
Since all tenants are part owners of the building, TICs require specific loans. In the past, Group TIC Loans were standard. The co-owners would have to qualify for a loan collectively as a group. But now, Individual TIC Loans for fractional ownership are becoming more popular. Pioneered by Sterling Bank in San Francisco these loans allow each TIC buyer to qualify independently and sign an individual note which is secured by a deed of trust covering only that owner’s share.
Want more information on how to get pre-approved for a TIC loan?
Contact Henry Jeanes at Sterling Bank & Trust. hjeanes@sterlingbank.com 213.201.3000.
For more information on purchasing a TIC contact Ali Jack ali.jack@compass.com 213.507.3959.