A tenancy-in-common (TIC) agreement created by a deed is a way for two or more property occupants to collectively own a property. (The term “tenancy” used in the context of tenancy-in-common means ownership, not in the context of “tenant” or someone who rents property.) According to Los Angeles-based agent, Christopher Stanley who specializes in TIC properties, “A TIC is a co-ownership agreement.”
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TIC properties are often smaller buildings than co-op or condominium buildings that have been converted from existing rental units. They are NOT new construction. Also, TICs are often less restrictive than co-op buildings…there are no co-op boards with authority to either approve/disapprove a sale of an individual unit.
One of the biggest selling points of a TIC property is price. It can sell for as much as a 15% discount compared to a similar property. For example, a recent TIC unit advertised in The Real Deal was snapped up in days due to the comparable pricing discount.
Los Angeles, by the way, is seeing a rise in TIC real estate. Why? According to Stanley, growing rent control restrictions, soaring home prices, an emerging willingness of lenders to provide loans and existing older building stock are creating a perfect storm for TICs. And, as rent control becomes stricter and stricter in Los Angeles, “…TICs are viable options for landlords who want to sell their assets.”
Stanley believes that TICs are good fits for “any big market with these specific criteria – vintage buildings (where people want to live), older housing stock that is under appreciated, constricted housing markets and strict rent control.”
Often, owners/occupants in TICs are unmarried, unrelated and can have different percentages of ownership in the property. One of the tenants could own 25% of the property; another could own 50% yet all of the tenants are equally responsible to pay for the liabilities and taxes on the TIC property.
Some of the Pros of TIC deed agreements:
- The number of tenants (owners) can change.
- There can be different degrees/percentages of ownership.
- All tenants of the TIC can independently sell and/or borrow based upon their ownership in the TIC
- TICs can be the default form among unmarried people who together acquire real property.
- TICs can facilitate borrowing if one owner has more income than other owners.
- The TIC stays in tact if one party wants to sell, unlike a joint tenancy agreement.
- If the owner has a will, the owner can bequeath her/his share of the property to anyone upon that owner’s death.
Some of the Cons of TIC deed agreements:
- One tenant can force the sale of the property.
- All tenant members sign the mortgage documents and in the case of defaults, the lender could seize the holdings from all group member if the other borrowers don’t cover the payments.
- All tenants are equally liable for debts and taxes regardless of their ownership percentages.
In light of this trend towards TICs in Los Angeles, know that TICs in San Francisco have been around and utilized for years. Landlords in New York City are also now coming around to TICs as a way to divest themselves of assets that are becoming more restrictive due to rent control issues.
For real estate agents wanting to participate in the growth of TICs in their markets, Stanley advises having or developing lenders who can help consumers obtain mortgages on TIC properties. “It’s really a game changer to have the financing.”
Thanks to InmanNews’ Jim Dalrymple, the RealDeal and Investopedia for source data.
Also read: Elliman Challenges StreetEasy’s (Zillow’s) Latest Move to Manual Listings Entry, Podcast: 7 Secrets To Selling That Impossible To Sell house! (LISTEN NOW), Are Empty Garages An Answer to California’s Housing Shortage?