Real Estate Column: Why TICS are a Great Deal Right Now
By Tim Gullicksen

The real estate market is in free fall in most parts of the nation. On an almost daily basis the media gives us a dose of how bad it is out there.

Then there is San Francisco, where values have remained remarkably resilient. Anybody shopping for a home in the City right now knows that housing values are not just holding steady; in many cases they are up!

The key seems to be buyer confidence. If buyers have confidence that the property will hold its value in the future then they are willing to enter into bidding wars. That is why a house in Noe Valley or a condo in Pacific Heights is considered a slam dunk.

So just where should the savvy real estate consumer be shopping these days? Is there any way to benefit from the downturn in the real estate market here in San Francisco?

I believe the most neglected segment of the market right now are Tenants-In-Common (TICs). Not just any TICs, but those in three-and-four unit buildings specifically. Since two-unit buildings can bypass the condo conversion lottery, they are still selling for prices similar to condos.

TICs have been, and continue to be, the most affordable way for renters to become owners in San Francisco. A TIC differs from a condo in that you are purchasing a percentage of the entire building you buy into, not the unit you actually occupy.

TICs in buildings with five or more units have more expensive commercial financing. But TIC interests in three-and-four unit buildings still qualify for decent loan programs and sell for significantly less than condos.

It seems that buyers are uncertain of the future value of TICs at the moment. So charming, large units in appealing neighborhoods with classic architecture are selling for a whole lot less than similarly sized condos in the same areas.  

For instance, let’s look at District 5 sales so far in 2008. (District 5 encompasses the Castro, Duboce Triangle, Buena Vista Park, Corona Heights, Haight Ashbury, Ashbury Heights, Twin Peaks, Noe Valley, Mission Dolores and Glen Park).

The average price per square foot for two-bedroom condos in District 5 so far in 2008 is $690. The average price for TIC units in three-and-four unit buildings is $410 per square foot. That’s a HUGE difference!

It is my belief that our housing market will rebound again. When overall confidence rebounds, prospective buyers will overlook the perceived risks of TICs. They will see a beautiful home for themselves at a much lower price. That demand will drive up prices. I cannot see TIC prices ever catching up with condo prices, but I can see them getting a heck of a lot closer than they are now!

In the past purchasing a TIC has meant getting a group loan for the whole building that all the TIC partners are on together. Now there is an option called fractional loans which are being offered by some of the smaller, local banks. A fractional loan is a separate mortgage for each individual owner on their percentage of interest in the TIC. It sounds complicated, but your real estate agent can help you learn what you need to know.

Tim Gullicksen is a Realtor with Domicile Properties which recently moved its offices to 168 Sanchez St. He can be reached at his office at (415) 522-2222. For more information, visit www.domicileproperties.com.

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