San Francisco’s property values have long been on the rise, but their mushrooming in recent years has been astounding. In the ten years before April 2019, the median home value increased by 90% – a reflection of how attractive living there is.

Unfortunately, this can put home ownership out of the reach of all but the wealthiest individuals. However, some alternative ownership methods can help make attractive properties more affordable. Probably the most popular and most effective of these is a Tenancy in Common, or TIC.

TICs Are an Innovative Form of Concurrent Ownership 

In a TIC, each owner has a share of the interest in the full property, instead of owning a specific unit. The shares may be equal, but they don’t have to be. For instance, if 5 co-owners share ownership of a property, one may own, say, 50%, while the others share the remaining 50%.

The TIC should have a detailed memorandum of agreement (MOU) specifically describing each individual interest, what fees may be required, who is responsible for repairs and anything else material to rights and responsibilities.

TICs Can Circumvent Overly Restrictive Zoning Laws Prohibiting Condominiums 

Because of the booming population, San Francisco enacted tough condominium conversion rules, limiting total conversions to 200 units per year. There are good reasons for this, especially to help keep rent costs from increasing too rapidly, but when property values have skyrocketed, restrictive laws can hurt the delicate balance between ownership and rentals.

Since a TIC is a form of shared ownership in the total property, there is no recording in an official deed of separate units, allowing co-owners to create a condo-like arrangement. The MOU should clearly describe your occupancy rights if you’re planning on living on the property. If the unit is already inhabited, you should make sure you know all relevant state and local laws regarding evicting the present tenant. If you plan on renting or subletting it, the agreement should have provisions to allow that.

New Finance Laws Are Friendly to TICs 

Previously, TICs usually required obtaining a group loan – a difficult and risky endeavor. Fairly recently, banks have started offering fractional loans to individuals in a Tenancy in Common. They are somewhat rare, but at least two banks offer them: National Cooperative Bank and Sterling Bank & Trust.

Another advantage of TIC properties is that they allow for the deferment of capital gains tax using a 1031 exchange. Many investors have turned to TICs for this very reason, along with their flexibility and low investment minimums in institutional grade real estate.

TICs have many advantages but must be done correctly for maximum benefit. Your attorney or accountant can help you decide if one is right for your portfolio.

James Montano