Sunday, January 28, 2007

2 Unit Building, Delivered Vacant

When you are in the market for a TIC, the benefits of purchasing a move-in ready, fully renovated unit must be offset by considerations like higher interest rates for fractional loans, the uncertainty of winning the condo lottery, and the lack of liquidity you might face if you sign up for a group loan.

One way around these hurdles is to purchase a tenant-free 2 unit building. Two unit buildings typically can go straight to condo conversion, which means ideally you will only be burdened with the TIC status for about the three years it takes to meet the residency requirements and go through the legal process of the conversion.

According to the information on
Two-unit buildings by-pass the conversion lottery if both units are occupied for one year by separate (unmarrried) individuals who each own at least a 25% interest in the property during the entire occupancy period. Occupancy is proven by electric and telephone service. No other building types can by-pass the lottery. Vacant apartments do not count as owner-occupied. A two-unit building cannot by-pass the lottery if an elderly (over 60 who has resided in the building for 10 years), disabled or catastrohically ill person was evicted from the building after November 16, 2004.

Last spring, when the market was hot, these types of properties were highly sought after. Competitive bidding made the buying process overly stressful, and prices on substandard flats could end up costing nearly as much as a condo. Now that the activity curve on real estate in the City has flattened, perhaps we will be seeing more 2 unit opportunities.

If I were looking to buy, I'd prefer a flat in a 2 unit building that needed some work over and above a perfect multi-unit dwelling that had a snowball's chance of winning the lottery. And before I finalized the deal I'd make sure my TIC partner also wanted to move quickly on conversion and I'd have a local lawyer who specialized in TICs affirm that there would be no barriers in moving straight to condo.


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