Tenancies-in-Common, or TICs, are on the rise in Los Angeles. They appeal to many first-time homebuyers who have been priced out of the market, but is the opportunity as great as it seems? A TIC is basically a group of people pooling their resources to buy a multi-unit building. Instead of buying a condo and the land on which it sits, buying into a TIC is like buying shares in a corporation.
TICs tend to be more affordable, which is why they are becoming more popular in the LA real estate market. The number one reason to buy a TIC is affordability. The entry-level condo market in Los Angeles is around $500k-$600k. TICs typically sell for 10 to 20 percent less, giving a lot of buyers a better chance of buying into the market.
Like condos that are managed by a Homeowner’s Association, TICs rely on detailed agreements dictating rules for the building, outlining what owners can and cannot do. The biggest difference is that a group of people owns the building, rather than each owner having their own property. As a TIC owner, you are a percentage shareholder in the building. And rather than a deed that is recorded in country records, a written agreement describes who has access to which unit, as well as storage, parking spaces, and other amenities.
Pros and Cons of TICs
Pros:
Affordability, as described above, is the biggest pro. TICs offer homeowners all the tax benefits and appreciation of owning an asset at a comparable cost to renting.
Smaller Communities: For buyers who like living in condos but don’t want the governance from a large association, TICs are appealing because they are smaller buildings, with smaller associations and fewer neighbors.
Cons:
Financing: Only a few lenders will finance a TIC. Interest rates for TIC loans are higher than those for condos or single-family homes, and buyers generally must put 20 to 25 percent of the sales price down. Additionally, 30-year fixed rates are not available for TIC loans. Because the loans aren’t conforming and lenders can’t sell them, the terms are limited to three, five, or seven years.
Property Taxes: In most California counties, each parcel of real estate has a single assessed value and receives its own property tax bill, regardless of whether the property has one owner or ten. For a TIC, this means that co-owners must determine for themselves how to fairly allocate their property tax burden. Equitably dividing the tax bill and efficiently collecting the payments from each other can be one of the more difficult issues facing TIC owners.
If you’re considering TIC homeownership before you allow yourself to become distracted by the price that may seem too good to be true, do your research!
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