The first thing to know about TICs is that all TICs are not created equal. Number of units, eviction history, year built, TIC agreements, and financing all play a big part in valuation and whether or not it makes sense to buy a TIC. The first thing you want to do is get an assessment on value versus condos. If a TIC isn’t significantly discounted over what a similar condo in the same neighborhood would cost, go on to the next one. More importantly several rules changes have had huge impact on the value of TICs. Talk with a KRG pro before beginning to look at any of these.
Some more details on things to consider:
- Number of Units: The number of units in a building makes a huge difference in value. Two unit buildings have special status as they can bypass the lottery and automatically condo-convert as long as both are owner-occupied and have a clean eviction history. Three to six unit buildings can only condo convert by going through a lottery, which can take a very long time. Currently buildings with seven units or more cannot ever convert.
- Eviction History: The rules changed in 2005 to make eviction history play an even bigger part in value for TICs. If protected tenants have been evicted you could permanently lose condo conversion rights, and if the building was Ellis Acted you can potentially severe rental restrictions depending on when it was done, as well as loss of condo conversion rights. We know how to sift through all the information to find out the true history and implications for you.
- Year Built: The year of construction determines whether or not the building is under rent control. The allowable rent increases are 1+% per year if under rent control.
- TIC Agreements: In many cases the TIC is only as good as the Agreement that governs it. While many are boilerplate with very few special clauses, it is imperative that an attorney review your agreement before purchasing to make sure there are no hidden problems that will come back to haunt you later. We work with one of the most respected TIC attorneys there is, so if you do decide to buy you can move forward without concerns of the agreement.
- Financing: There are only certain lenders who do loans on TICs, so your options are limited. There are no 30 year fixed loan products for TICs and the rates are higher, so you need to make sure that valuation is right or it will likely make more sense to buy a condo. The financing situation also makes resale more difficult, so we will do an in-depth analysis to make sure this is the right move for you.