Are there really bank-owned TICs in the Inner Mission? Yes, but it’s probably not the exact scenario some have been expecting.
In January of 2005 the six-unit building at 1419 South Van Ness Avenue sold for $1,090,000. Financing for the purchase and a likely renovation was provided primarily by the “Magnate Fund LLC” to the tune of $1,490,000.
Five months ago the building was taken back by “the bank” which then appears to have transferred the property to a new LLC which shares the same Concord address as the lender. And three days ago, two of the six units hit the MLS as “bank owned” TICs.
∙ Listing: 1421 South Van Ness Avenue (3/1) 1,074 sqft – $485,000 [MLS]
∙ Listing: 1423 South Van Ness Avenue (3/1) 1,159 sqft – $519,000 [MLS]
Unless the current owner is actually a bank, it sounds like false advertising to me.
3/1 with parking for less than 1/2 mil. Too bad the location sucks and it’s a TIC.
Big downside is that this is a TIC that will remain a TIC if it was cleared by Ellis evictions, or if not will need to go into the lottery. Will these be able to get individual TIC loans?
The location is deep into the Mission, which doesn’t suck if one likes the Mission.
I have been looking in SF,… but now I am confused.. What is a TIC?
A TIC is a partnership between co-owners. For the outside world, there is only one property as opposed to condos where each condo is a property.
Each co-tenant owns a share of the building corresponding to the value of the unit he occupies. A co-tenant is responsible for the inside of his unit, but shares responsibility for the rest of the building with the other co-tenants.
The 2 big issues: 1 – you are liable for other people’s actions. You’d better make sure they have all the proper insurance and are financially sound. 2 – Financing is a b!tch. Few banks will finance these deals as they cannot resell the mortgages like regular ones.
Risk + financing issues =
This means prices that can be as low as 30-40% less than a condo.
These were Ellised in May 2005 (according to the SFTU list).
@lol But, of course, we all know that a 3/1 is really a 2/1 with a room just big enough for a baby crib.
@Tony start at http://www.andysirkin.com and go from there
Are you responsible for another TIC owner if they fall behind on their mortgage?
The location certainly doesn’t “suck.” You’re a block from BART, a block from the restaurants on 24th, a block from Mission St. and two blocks from Hipters’ Heaven (Valencia). For some demographic (hipsters), this is a dream location.
But being a TIC makes it a challenge and if true, being a TIC in an ellised building, now that “sucks.”
IANAL, but there are 2 types of financing: group and fractional. With group financing, there’s only one mortgage and therefore you’re liable, from what I understand. With fractional, you are somewhat (emphasis on SOMEWHAT) shielded from this and the key is to have a solid TIC agreement. http://www.andysirkin.com has a lot of good info as Sirkin is the gold standard there. The devil is in the details.
I passed on a “deal” in June because it had group financing and 3 of the co-tenants (inc. the seller) mortgaged to the bone and probably 20% underwater. The seller should have done a short sale, but you cannot do that with TICs, fractional or group. The last option was for him to bring cash at closing which he couldn’t. He is stuck.
Which is why many will stay away from TICs. As far as I am concerned, I am currently buying into a TIC because the price is right, the financing is fractional and the 2 other co-tenants are loaded. That and the fact that I plan to hold long term and the rent value would cover mortgage+taxes+HOA fees.
Again, IANAL or a professional. Simply a recent TIC buyer.
condo>>TIC
http://www.880southvanness.com/
“because the price is right, the financing is fractional and the 2 other co-tenants are loaded.”
Two days after lol closes…
Ring, Ring. Hello lol? This is co-tenant 1. Co-tenant 2 just died and so we’re selling too.
Two Years Later
Ring Ring. Hello LOL? This is new co-tenant 1. Our fractional requires it to be refinanced every 5 years (you knew that, didn’t you?). The existing bank isn’t doing fractionals any more and new co-tenant 2 can’t qualify with the two remaining banks who are doing them because we are so far underwater, so we need to get a group loan. I lost my job this past week, so you don’t mind making a few of my payments, do you?
See how all of that can change? Like magic!
tipster, good points.
Yes I did think about this. I have 2 strategies:
1 – I have the amount corresponding to the mortgage in 2.8% 5Y CDs. Last recourse fund.
2 – I have put 1/2 down. My mortgage is ridiculously low (low entry point). My plan is to have it paid off in… 5 years.
Any other questions?
The biggest problem with TICs is they are under the rent control ordinance. Condos are not (except for the owner who condo converts). So if you want to hold a place long term and rent it out after you move on, with a TIC you’re stuck with the whims of rent control. It’s worth the condo premium just to avoid that risk imho.
where does it say “bank owned” in the listing? did the agent change something in the last 24 hours?
A.T.
Of course the bank will not finance a rental TIC. You have to live in it at first. But I think you can rent it out as you wish once you’re in.
About rent control, there are ways to prevent the traps of long-term leases not following inflation. The first obvious choice is to do corporate/furnished rentals. Renters will stay a few months. You won’t be 100% full, and the mark-up from a regular rental should account for that. Rent will be very dynamic and close to the market. It is sometimes time-intensive (a management company can do that for you for a fee), and if you live close-by that should be OK. It’s your asset, your future. Care for it and stay close.
Another way is to rent to targeted segments of the population and avoid Craigslist. Try and get young single professionals who are likely to outgrow the place. Do that by advertising where they are likely to look. Workplace, friends, campuses, etc… Of course if you’re on Craigslist, you cannot pick/discriminate. If you do the selection upstream everything stays in all fairness.
Also, the number of bathrooms will be an issue for growing families, therefore go for 1 bath places so that they won’t be too comfy.
lol, have you checked the TIC agreement? Are you certain it allows renting units?
I could certainly be wrong about this, but in my opinion any TIC agreement that even allowed units to be rented is a bad agreement. I say this for several reasons:
1) even with your plan of renting for corporate clients, any renter could turn into a long term renter that falls under rent control. The odds may be low, but the consequences are high.
2) Many TIC buyers will not even consider buying a unit that has any renters in the building. I’ve seen some units attempt to sell with renters in the building, and it’s not easy.
3) your co-owners may rent under different practices than you, and that renter could later sue under rent control, exposing you to potential liability.
I’m not opposed to TIC in concept, and I’ve never seen a contract, so maybe my concerns are unwarranted, but I recommend you be very careful with any plan that involves the possibility of renting out a TIC unit at some future date.
Particularly, if the corporate route was so simple a workaround to rent control, wouldn’t landlords already be using it all over the place?
I can’t imagine this location would support a corporate rental market. Hopefully anyone with that as a plan would buy in a different location, as much as I like the Mission.
I think a TIC like this, which can pretty much never go condo (assuming that at least one of the evicted tenants was protected) only makes sense if you plan to live there long-term, and sell when you move. Renting this would be a serious, serious risk, and I would be shocked if your cotenants agreed to let you do it.
Running the numbers, though, if you are getting enough of a discount, it might still make sense. Need to leave the area for a year? You could leave the place vacant and still come out way ahead of the cost of buying a condo.
@lyqwyd
Most mortgagors will not allow renting a TIC and specify it must be prohibited in the TIC agreement, which they review prior to approving the loan. It’s because taking control of a unit after a foreclosure is nearly impossible if it’s full of protected renters.
Mortgagors also demand the unilateral right to Ellis a building in case of a foreclosure which destroys the ability of the other tenants to condo convert.
the chances that a six unit building will meet the residency req’s and then win the condo conversion lottery are slim. ~2000 units iirc, are in line for the 200 annual permits. that means that an ellis’d bldg is not that much worse than one that has not been ellis’d.
also, don’t forget that many group tic loans are assumable. ignore the misinformation about mandatory 5 year refinancings- dre says if a bank wants to play in the tic pool they must offer 30 yr amortizations (crappy arms but not horrible).
recently i had news that the various buyers of a six unit ellised tic bldg (from ’06) were able to refinance their fractional loans. they went from 7.25% (5/1arms)to 5.625% (recast 5/1arms). its a quality bldg which just had its first resale (an apple, btw). tho this is just one anecdote i have heard from others who actually have first hand experience that this is not uncommon in the local tic community…
i bet rillion would agree.
That’s still a pretty crappy rate when you consider traditional 5/1’s are averaging ~3.75% and some are advertised under 3%
There is nothing wrong with TICs per se, but given the risks I would only consider buying into one with trusted friends or family members in the other units. You just never know what a stranger is going to pull. I have a good friend who is going into year three of litigation with four other owners against the last owner in a 6-unit building. They are trying to refi out of their common 7.75% loan into fractional ~5.5% loans, but he can’t qualify. Under the agreement, he must sell under such circumstances, but he won’t (can’t as he’s underwater). Between the higher rate for the last 5 years and counting and the legal bills, my friend has already eaten up the TIC discount and could have bought a condo w/o all these risks. Be very careful who you go into business with.
lol, have you checked the TIC agreement? Are you certain it allows renting units?
It does. There’s a whole section in the boilerplate Sirkin agreement. You have to submit rental applications to the other TIC co-tenants but the other co-tenants have to give a good reason to deny a renter. The bank did sign off on the TIC agreement, therefore they know they couldn’t prevent me from renting if I ever wanted to.
I could certainly be wrong about this, but in my opinion any TIC agreement that even allowed units to be rented is a bad agreement. I say this for several reasons:
1) even with your plan of renting for corporate clients, any renter could turn into a long term renter that falls under rent control. The odds may be low, but the consequences are high.
Of course they can. But the corporate rental rate does ensure that doesn’t happen. You can charge easily 50 to 70% more with corporate rentals. Nobody in his right mind would do this long term for the sole purpose of locking in the rent. They’d hop to a cheaper rental (this is what I did when I moved in SF: first corporate, then a normal rental).
2) Many TIC buyers will not even consider buying a unit that has any renters in the building. I’ve seen some units attempt to sell with renters in the building, and it’s not easy.
I have no plan to sell. This is a long term buy. Plus I will make sure I have no sticky tenants.
3) your co-owners may rent under different practices than you, and that renter could later sue under rent control, exposing you to potential liability.
I don’t see your point. This is a different type of rental. Rent would never be re-adjusted if the tenant stays for less than a year. The rent adjustments would be between rentals, and I am free to ask whatever I want in that case.
I’m not opposed to TIC in concept, and I’ve never seen a contract, so maybe my concerns are unwarranted, but I recommend you be very careful with any plan that involves the possibility of renting out a TIC unit at some future date.
It’s permitted. The bank wants YOU to be the person moving in. But they have no say in what you do after that. Plus, I plan to pay off the mortgage in 5 years, which whatever the bank thinks after that time is none of my concerns. No banky, no probly.
Particularly, if the corporate route was so simple a workaround to rent control, wouldn’t landlords already be using it all over the place?
It’s a different type of rental. But I know more and more people doing it. The key is to find the right balance. Be attractive enough but not too attractive.
@lol,
sounds like you’ve done your research and have some good plans, best of luck in your purchase!
A.T.
Oh yes, you have to be very cautious. Which is why buying today is much safer than 2008. In 2008 TICs would sell at almost the price of condos. Now the historical discount is pretty much restored, compounded with the lower overall price point.
In boom/bubble times people tend to think that appreciation will dwarf any kind of flaw. Just like noisy condo towers would fetch 1000/sf+, today’s buyers will be much more selective. But they’re still interested in quality.
Under the agreement, he must sell under such circumstances, but he won’t (can’t as he’s underwater).
AT, Interesting TIC horror story. I think what many TIC buyers (and co-tenants) don’t understand is that the (financially) weakest member of the TIC is the most powerful. Many TIC agreements with a group loan have the nuclear option — a forced partition sale which benefits no one. That guy should force the others to take out another group loan at a lower interest rate (which they will qualify for using aggregate group income). Someone should talk some sense into them, as a lower interest rate will save them mucho dinero (and cost less than going after him with a lawyer). Instead, in their arrogance (they are right, after all), they decided to go the legal route to bend this guy to their will. He’s got his golden (TIC lottery) ticket, and he’s not letting go — hope springs eternal.
>i bet rillion would agree.
I’m in a condo not a TIC. A very cheap condo. I looked at a couple TIC’s (including the one of the landlord’s gone wild fame) and even wanted to make an offer on one back in 06 (but it was in contract before I even saw it at the open house), so not opposed to TIC’s if they make sense.
As an fyi, another 2b/1ba unit in my complex just hit the MLS, its got about a few more sq ft then mine and since its on the ground floor has hardwood floors versus carpeting. Its current asking is 12% under what I paid for my unit in Feb 2007. Last 2bd/1ba unit to sell in our complex was in summer 2007, so very interested to see if this sells and if so what the new comp is.
>A very cheap condo.
to clarify, cheap by SF standards, still outragiously expensive by rational standards. 🙂
@rillion,
sorry about that incorrect reference.
@lyqwyd,
“That’s still a pretty crappy rate when you consider traditional 5/1’s are averaging ~3.75% and some are advertised under 3%”
agreed. my point tho, is that even in this economic environment banks are willing to compete for tic business. even as doomers
theorize the extinction of the tic segment we are seeing banks offering better rates than ever before.
pundits forget that banks wanted bigger downpayments and better dti ratios from tic buyers in return for financing. it was hardly the realm of 0% down fha loans that other market segments witnessed.
In historical standards, anything under 6% is a good rate. Even my 5.625% 5/1 looks like a steal (I had bought in the 90s at 8-ish%).
Of course we’ve been spoiled by the “spend-it-forward” policy of cheap money. People who bought 15 years ago in the 200s-300s were paying almost as much as today’s buyers in the 500s-700s.
Let’s not forget that the past decade has been an artificial manipulation of debt compounded with global trade imbalances. We’re still in the “extend-and-pretend” phase though things are looking up.
We haven’t found out yet how this is all going to play out. Hopefully inflation will save us all, but hope is not a good enough reason to over-leverage yourself…
“That’s still a pretty crappy rate when you consider traditional 5/1’s are averaging ~3.75% and some are advertised under 3%”
It’s an outrage that decent honest homeowners are forced to suffer under an outrageous 3.75% interest rate! Time for QEIII. Ben! Fire up the helicopters.
“traditional 5/1’s” – Just like grandma used to have!
The list price for 1421 South Van Ness has been reduced to $459,000.
The sale of 1423 Van Ness closed escrow today with a reported contract price of $489,000, $422 per square foot for the Inner Mission three-bedroom TIC.
The sale of 1421 South Van Ness closed escrow yesterday with a reported contract price of $443,000, $412 per square foot for the Inner Mission three-bedroom TIC.