Friday, May 27, 2005

Condos and Tenancys In Common (TICs) - Part I

A lot of you visiting this site have been looking for information on San Francisco condominiums and conversion from Tenancys In Common (TICs) to condos.

Therefore, I will be providing a series of posts that will help you understand the differences between TICs and condos, different rules pertaining to condo conversion, and other useful information about this type of market, including great resource links.

Please feel free to send me questions that you would like answered, as I am sure the answers I provide will be useful to many more readers.

Q: Tenancy In Common vs. Condominium – What’s The Difference?

A: The basic difference between a TIC and a condominium is the way that the particular unit is financed, and thus the degree of risk involved in ownership. From a physical perspective you cannot tell them apart. They are both one unit in a building that contains two or more units.

In TIC ownership, each person owns a percentage of the building as a whole. It is a partnership in investment, and ownership is broken down by the percent value of the each person’s investment – which is represented by the particular unit they will occupy or rent out to others. Therefore, as a buyer you are paying for that unit’s worth overall, depending on its size, location and amenities in relation to the rest of units in the building.

From a financing perspective then, every “partner” in the building is accounted for on the same mortgage, for the investment as a whole. One mortgage, several accountable partners for its timely payment. If one partner is unable to pay, it affects all of the other partners in the investment. This risk factor, along with other issues I will address later, is why TICs have historically been less expensive to purchase than condominiums.

TIC partners must come up with their own rules about how to share common areas in the building, as well as the burden of maintenance, upkeep, and security issues.

When an owner TIC unit decides to sell, he or she is really making the decision to opt out of the investment and find a replacement for the “partnership.” The value of the unit, and its relation to the building’s value, are re-assessed. A new person purchases that interest in the building, and either assumes the previous owner’s mortgage, or a new mortgage with the new partnership (all other investors plus the new investor) is created.

Condominiums, as I said, look and feel just like TICs. The difference is that a condominium is a separate and divided interest in a building with two or more units. Each buyer is purchasing one unit free and clear of the others, with exception of having joint responsibility to maintain common areas. Condo owners therefore have a mortgage for only the unit they own, lowering the risk of default. Because the degree of risk is lower, condominiums historically have been more expensive to purchase than TICs.

In addition to financing one’s own separate unit in a multi-unit building, condo owners pay Home Owner’s Association (HOA) dues on a monthly basis. These dues vary per building, according to the needs and desires of all residents of each particular building.

Condominiums also have outlined standard Conditions, Covenants, and Restrictions (CC&Rs) that prescribe the rules and regulations of all occupants. CC&Rs are official legally binding rules, and can only be altered by a unanimous decision from the HOA board. CC&Rs are designed to help protect each owner’s right to quiet enjoyment of their space.

When the owner of a condominium decides to sell, he or she sells the interest in that single unit. That unit’s value is re-assessed and sold to another individual purchaser, who will find his or her own financing option.

Have more questions about trends in the housing market? Questions about selling or buying a home? Contact me today for honest, experienced answers. Amy Blakeley, Realtor®
ablakeley at mcguire.com
(415) 296-2173 Direct

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