Condo
Co-Op
TIC
How Shared Ownership Models Compare to Condos
While not as common as condos in San Francisco, TICs (Tenancy In Common) and Co-Operatives (Co-Ops) can sometimes provide a more affordable form of shared property ownership that may be attractive to some buyers.
Although they all have similar features, there are some key differences that are important to understand. I have worked with numerous clients to purchase TICs and Co-Ops in San Francisco, and in my days of flipping I converted apartment buildings to TICs. While shared ownership properties are a bit trickier at first to navigate and purchase, with the right guidance, they can be a great fit for buyers interested in the market.
Below I’ve provided an overview of some of the basic differences and similarities between these types of properties.
Ownership
Condo
The unit is owned by the buyer outright. Each owner has an individual deed for their unit.
Co-Op
The buyer purchases shares in a cooperative corporation that owns the building. Shares are based on the size and location of the unit. Each buyer has a stock certificate and a proprietary lease or occupancy agreement for the unit.
TIC
Buyers purchase an undivided ownership interest in a multi-unit building. TIC owners own percentages of the property rather than the entirety of a unit. There is one deed showing each owner’s percentage of the building. Terms of ownership (such as assignment of the unit, parking, storage, or outdoor spaces) are outlined in the TIC Agreement.
Mortgage
Condo
The unit is the collateral for the mortgage. Lenders may alter terms based on the financial stability of the HOA (Home Owner’s Association), the condition of the building, and available reserve funds.
Co-Op
Shareholders can obtain a loan to buy shares. The shares serve as the collateral, but are not as valuable to a lender as real property.
TIC
TICs are usually purchased with “fractional” loans, an individual mortgage for each owner. Interest rates for fractional TIC loans are slightly higher. 30-year fixed rates have just become available for the first time, but the rates are even higher.
Governance & Rules
Condo
The condo’s HOA Board members are typically elected by the other condo owners in the building.
HOAs are required to maintain a Covenants, Conditions & Restrictions document (CC&Rs), which outlines all the rules for the property.
Co-Op
Co-Ops are governed by a board which is composed of elected shareholders. Co-Ops have bylaws that establish how the board is elected and how the corporation will be run, including the rules for the building. |
TIC
A formal management structure is typically outlined in the TIC Agreement. TIC Agreements are signed by all owners and establish rules for the building and outline what owners can and cannot do, similar to CC&Rs.
Shared Costs & Maintenance
Condo
Shared costs are paid by the HOA. Owners pay monthly fees to the HOA.
Co-Op
Each shareholder pays monthly fees to the corporation which pays the bills.
TIC
Each owner provides monthly fees based on their share outlined in the TIC Agreement. Shared costs are paid through a group bank account.
There are other factors to consider with Co-Ops and TICs, such as rules around condo conversion, limitations on renting the property, resale of the unit, and other issues. In addition, securing financing, and navigating legal issues for these types of shared ownership models is more complicated, so the counsel of an agent, lender, and lawyer experienced with these properties is important.
The Right Guidance Matters
As with any real estate transaction, it’s important to thoroughly assess the risks and rewards of investing in a Co-Op, TIC, or condo. I encourage my clients to carefully review board minutes, financial statements, and other rules, and I help them assess the physical condition of the building and the financial health of the governing HOA or board.
Working with an experienced real estate agent can help you make an informed decision before investing in a shared ownership situation. With my expertise and due diligence, I can guide you along the way, help you understand the terms of your commitment, and make sure you are making a sound investment for your future.
