[Update 2: From "Garrett" in the comments below: "what this chart doesn’t measure is opportunity costs. it is a PAIN IN THE ASS to buy/sell/manage a TIC. i don’t care if it’s a 2 unit building or a 6 unit building, TICs always come with drama… if you want to condo convert it will cost money and you’ll have to deal with your partners and the city. if you want to sell, you’ll have to deal with equity/liquid cash issues. the drama/potential problem list goes on and on and on. so, not only is there a difference in “value” there is an even greater discrepancy between TICs and Condos when it comes to time, headaches and just general pains in the ass." Now how many Realtors are going to be that honest with you? Hats off to Garrett!]

RealDataSF is Misha Weidman…and we thank him for the graph. More details at his site.

Hi!

My husband and I are considering purchasing a TIC unit in the Marina. The owners currently have fractional loans through the Bank of Marin. If we did purchase, would we be locked in to their loan rate/term or could we negotiate? Could we work with lenders other than Bank of Marin? We have excellent credit and could put down 50%+ so we’re
hoping we could get a good rate.

Many thanks for any comments!

Our follow up email:

My first question, if you can put 50% down, why not just look for a condo? How many units in the building? Which real estate agent are you working with? The final, are you okay with me posting your question to the site to get multiple answers?

Thanks for reading theFrontSteps and thanks so much for you email.

I’m not a fan of TICs, but I’m willing to hear you out.

The reply:

Thanks! Yes, fine to post it if the focus of the answers will be on
financing and not whether or not to buy a TIC – we already know the
pros/cons.

We are currently in a condo and are considering condos as well but this unit’s price is much lower than comparable condos (we’ve been looking casually in the Marina for over a year now) the location is perfect (on bedrock, quiet part of the Marina). We’ve researched TICs and are willing to take the risk if we can get a good financing package. So our question isn’t whether or not to buy a TIC, it’s whether or not we have to work with the current lender (Bank of Marin) and also what typical financing for TICs looks like (the current owners have a fixed rate for 10 years and then a balloon payment).

Thanks!

You’re welcome. Anyone care to elaborate?

“Does anyone have experience with a client who bought into a 2 unit TIC and paid all cash and the partner had a loan? In particular, what type of legal protection did they get in case of loan default by the mortgaged TIC partner.

Answers

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It should be covered under the TIC agreement, allowing one partner to force a sale in the case of default.

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I have no experience with this exactly but have been through quite a bit on the TIC front.

My thoughts are as follows:

If the loan is fractional and the all cash buyer’s name is not on it .. then, of course, there is no liability. The buyer becomes a co-tenant with the bank.

If the all cash buyer is on the loan then his/her credit will get slammed .. and a foreclosure would be on the whole property (including their interest). That is why the TIC agreement enables the all cash buyer to use reserve fund to pay the mortgage, then foreclose on the co-tenant and sell the interest. The bank may or may not allow them to assume the loan during this bridge period .. the bank may (perhaps) not find out for a while.

Again, this is my opinion .. no experience in the matter and I have, no doubt missed a few things.

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There would have to be a default fund, which is usually 6 months worth of payments. The TIC agreement by Sirkin has that built in as well as remedy for default by a partner.

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I sold a 2unit bldg recently where there was a big discrepancy in the loan amounts for each partner, maybe the situation is analogous to yours, and I think the TIC agreement itself (Sirkin) spelled out that any default on the loan payments by one partner which might jeopardize the bldg or put at risk of foreclosure, etc., triggers a sequence of options including buy-out, forced sale, etc, which protects the other partner. I think those protections would apply even if the all-cash partner was not on the loan at all.”