What does tenants in common mean in real estate?

If you’re a first-time buyer new to real estate, you’ve probably come across the term TIC.

In real estate terms, TIC stands for tenants in common, ortenancy in common. A TIC is a way for two or more people to jointly purchase real estate and take title to that property, without having right of survivorship. Unlike an individual or a married couple, people purchasing together need to take ownership in a way that protects their interest in the property in case of death. In a TIC, they can pass along their interest in the property to their designated heir(s).

Over time, especially in San Francisco, TIC has become a term used to describe an actual unit or a building. Here’s a quick look at TICs and why they’re popular in San Francisco in particular.

Using TICs to maximize buying power

High real estate prices have made places like San Francisco unaffordable for investors seeking to buy out and rent 2-6 unit buildings as an investment property. Additionally, sky-high values for homes and condos in the Bay Area make it difficult for some, especially first-time homebuyers, to purchase their own residence.

So more and more first-time homebuyers use TICs to maximize their buying power. They pool financial resources with others to purchase more real estate than each could afford on their own.

In a TIC, the buyers agree to an allocation of rights and responsibilities. The buyers own an interest in the entire building, rather than actually “owning” their own unit.

TICs can be a first step toward owning a condo

Multi-unit buildings are frequently sold as TIC interests as the first step to owning a condo, which are more attractive in the marketplace and sell for higher prices.

In San Francisco, a multi-unit building with less than 5 units can qualify for the condo conversion process after satisfying residency requirements as well as making sure that upgrades to condo codes are completed.

Depending on the type and size of the building, you must enter San Francisco’s condo lottery, where 200 units a year are selected for conversion. The lottery drawing is typically held in early February.

Winning the lottery is just as it sounds. It’s a matter of luck how quickly your building gets selected, as there are hundreds of units competing.

San Francisco Mayor Gavin Newsom recently proposed ending the lottery system once, so that over 2,000 building owners could convert to condo for higher fees. (Typically, the city charges $9,099 per unit.)

This would enable the city to get a boost in revenues. But advocates for renters say more condo conversions will increase evictions and reduce the rental supply. Newsom will reportedly introduce his condo conversion proposal to the Board of Supervisors, who turned down a similar proposal in 2009. It’s possible the issue will end up on the November ballot, if the supervisors block it.

Bottom line: TICs can be an affordable way to enter a pricey real estate market. Just don’t expect a quick condo conversion to follow.

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