TIC Lending

Most people are surprised to learn that TICs or Tenants in Common have been around in the Bay Area for many years.  People have been holding title as Tenants in Common since the early 1900's.  It took a while to catch on but for well over 10 years now, buying into a TIC has been a popular way for home buyers to get into the Bay Area housing market.

One of the aspects that is often not very well understood is the financing of a TIC.  There are basically two ways to finance a building when the owners are holding title as tenants in common.  A group TIC loan or fractionalized TIC loans.

In a group TIC loan the TIC partners apply for a loan as a group.  The lender compiles everyone's qualifications and funds a loan based on the groups qualifications.  Everyone is on one loan and they are all responsible as a group for the entire loan payment.  This means that if one person does not make their monthly payment the group is still responsible for the entire payment.  This obviously adds some risk to your investment but for many people, including myself, it is a risk worth taking.  Most TIC agreements have clauses to help ensure that a group TIC loan stays in good standing with the lender.  One of the most common is for a TIC group to create a reserve account.  The TIC group would require each person to deposit two months or more of their mortgage payments into a house account. 

The other option TIC partners have is fractionalized or individual TIC loans.  The main component of a fractionalized TIC loan is that each borrower is qualifying for their own loan and is only responsible for their portion of the mortgage.  This alleviates concerns of sharing a mortgage with another person.  Which in turn makes it more similar to owning a condo.  Some would argue that having a fractionalized loan also makes it easier to sell or refinance.

So which is better a group loan or fractionalized?  The answer is - it depends.  There are pros and cons to each type of loan.  Just like all real estate financing it is important to work with someone who can consult you on all of your options and help your group decide which loan program is best for you.

I bought into my first TIC in 1996.  It was 25% ownership of a four unit building in Hayes Valley.  I had a very good experience and continue to recommend TICs to others.  I have been a full time Loan Consultant since 2001.  Since then I have personally funded more than $140,000,000 in loans.  A lot of those have been TIC's.  If you would like more information on TIC's or any aspect of real estate financing please feel free to contact me.

If you are looking for more information on TIC's in general.  I recommend the following sites:

http://www.g3mh.com/articles.htm

http://www.andysirkin.com