Sharing the Burden

One of the good things about being in a TIC is sharing the cost of capital improvements, like a new roof.

One of the bad things about being in a TIC is not having control over if and when house bills are paid.

About 6 months ago our group did a fractional loan refinance. I was assigned the task of working with a lawyer on updating our TIC agreement, a necessary part of any refi. The lawyer performed the service promptly and with good quality. Today I got a call from his office saying that the bill, incurred last June, was still outstanding. Apparently, the person in my group who pays the bills had overlooked this invoice, even though I reminded him about it the first time they called me back at the end of August.

This ticked me off. If you want me to participate in building business by building relationships with valuable service providers don't put me in the position of looking like a deadbeat six months later. I sent my building partner an email saying if he didn't write a check within seven days that I was going to pay the lawyer and deduct the fees from my monthly dues. Why does it have to get to this point?

After seven years of partnership, we still do things somewhat informally in my TIC. My advice to new TIC owners is to have whoever is doing your accounts, whether an internal partner or outside managment service, share a monthly statement with the group of bills received and bills paid.

Cie La Vie MLS

I am finding that many of the TIC listings I see on Craig's List or elsewhere are not showing up on the MLS. I'm not sure if that is a good thing or a bad thing. Or if it makes no difference...

66 Central Avenue

The Edwardian box beam details in this one bedroom unit captured my attention, as did the location on Buena Vista Park. What a lovely view to gaze upon while lighting your dinner candles. The buyer will also have access to a roof deck and in-unit laundry, plus basement storage, but alas, parking is leased. The building dates back to about 1910, so I would also inquire about the state of the plumbing and electrical. The realtor suggest that the dining room could be turned into the living room, and the living room could be used as a second bedroom, since the kitchen is eat-in. But this looks to me to be more of an elegant pad for a single or a couple, rather than a place to bunk down with kids.

To Answer that Supplemental Tax Question

New San Francisco TIC owners should be aware of how supplemental tax works. Whenever a property is sold, whether it is 100% of the TIC shares or one partner's percentage, state law allows the City to reassess the property. The City property tax charged to your TIC group is based on this assessment.

The problem is the City Assessor's office is about 2 years behind on re-assessments. Let's consider the scenario described by the woman at last week's Plan C meeeting. Owner A purchases his shares in your building in 2001 for $300,00. In 2006, he sells those shares to a new partner, owner B, for $500,000. One year later Owner B sells those same shares to next new owner C for the same price - $500,000. Because the assessor's office hasn't yet re-assessed the property owner C and all the other building partners who haven't done a thing are going to end up being responsible for paying the Supplemental bill when it arrives, triggered by that first sale from Owner A to Owner B. In theory Owner B is responsible for this charge, but if no one collected it and he or she has moved to Nebraska, good luck.

The Supplemental bill is, in essence, a catch up bill that dates back to when a sale was made and the City reassessment should have taken place. Depending on the degree of reassessment it can be just a few bucks or tens of thousands. Once the bill gets issued, the City wants it paid in full by the date due. They don't care too much about who was zooming who in your building two or three years prior.

One way to avoid this kind of confusion is to have the person who manages the accounts in your TIC do a calculated estimate of the supplemental tax whenever a sale takes place, and make the new buyer put that money in your house account. When the actual bill comes, your group can do a reckoning to make sure the owner has paid the correct amount. The new buyer, and any realtors involved in the transaction, should be notified about this requirement of your TIC before the sale is closed.

Read more about the Supplemental Property Tax on sfgov.

Mill Valley TICs

Tired of the the urban dum and strang? Like to mountain bike? Looks like this 16-unit Mill Valley rental complex is transitioning to fractional ownership. In the $300,000 price range, at first glance these duplex units look like relatively good deals for buyers who are priced out of San Francisco. They are modest - just 550 aquare feet - but have a certain boxy modernist look. At least you get some outdoor space in the way of a small yard or patio, as well as all the public open space of Marin near by.

Note you will be living amidst renters until if and when the entire complex becomes owner occupied. Quick calculation - depending on the down payment buyers will be paying as much as $1,800 in a monthly mortgage to the bank, plus taxes, insurance and common charges. I wonder how much those next door neighbor tenants are paying? And will owning in a mixed complex like this impact your resale value later on?

To editorialize a bit about why the private market is going to keep TICs coming... When the sales on all these units are over and done, sixteen times $300,000 will get the seller almost $5 million, and will free him/her/them from the responsibilities of maintenance. In my calculation from the owner perspective $5 million in the bank free and clear of any obligation sure beats managing the physical plant of sixteen apartments and trying to keep sixteen tenants happy.

Pick A Neighborhood

This property at 234-236 Linden is posted on Craig's list in three different neighborhoods - Hayes Valley, Lower Haight, Civic Center. Do the realtors honestly think that will make a difference to any prospective buyer? Try lowering the price. These units are nice enough but they have been on the market for months. It's the lack of parking at that price that is making them a hard sell.

TIC Homeownership Summit

This evening I attended the Plan C TIC Homeownership Summit. Many of the usual suspects were in attendance, from TIC inventor attorney Andy Sirkin to the dreaded pseudo-realtor Roger Mwamba, who sat one row front of me sporting $500 alligator skin shoes. The evening was divided into three topics - assessment/taxation, fractional financing and local legislative politics.

Assessor Phil Ting appeared buoyant but relatively TIC clueless, repeatedly saying units when he meant properties or buildings and vice versa. (I am getting weary of San Francisco politicians whose likeability exceeds their acuity.) When it comes to TICs the devils are in the details and the details seemed to elude Assessor Ting. Someone had to call out from the audience. "In a TIC we don't own units or buildings. We own percentages of a building."

Ting made the "big announcement" that his office would be starting to assess individual TIC units, but then could not address intelligent questions from the audience. One woman, for example, asked whether there was any recourse if an owner flipped a unit before the Assessor's office got around to doing the re-assessment that triggers the supplemental tax bill. (Apparently there is currently a two year backlog on post-purchase re-assessments. Supplemental tax bills are catch up property tax bills that are sent once the sold unit gets reassessed.) Fundamentally, the question was, if an owner flips are the new owner and/or the other building partners left with the obligation to pay the supplemental tax? Fifteen minutes went by as Assessor Ting cheerfully gave answers that did not address that question. Audience members also chimed in with equally irrelevant responses.

I purchased my TIC shares in 2000 and I am adamant about retaining my Prop 13 tax advantage. My assessment (and property tax) is based on what I paid for the unit in 2000 and likewise for my other building partners, depending on the relative percentage to total value of their purchase price. By the end of Assessor Ting's talk I had a perhaps irrational fear that somewhere in the future the City would start sending me a tax bill for my unit based on lord knows what. After seven years my TIC group is quite fine dividing up assessements and our tax bill by ourselves, thank you. (Plan C has promised to put up a page on their website clarifying why the Assessor's plan is a good idea.)

Treasurer José Cisneros, on the other hand, was exceedingly articulate. No matter what the Assessor's office does, he pointed out, tax bills on TIC properties must be paid in full to avoid consequences like a 10% late tariff. So TICs still need to work as a group to make sure all property taxes are paid by the annual deadlines. (If one owner pays on time and another owner doesn't that means a 10% penalty based on the whole building's tax bill.) When it comes to taxes (and insurance) TIC owners are still "tied at the hip."

On to fractional loans. Sterling Bank, Bank of Marin, Circle Bank and America California Bank all sent representatives to the summit. The TIC lending market is still exceedingly local. Rates remain generally in the low 7 percents. (And when a banker says low he means anything 7.5 and below.) There is still no secondary market for these loans, which is part of what makes the rates high and the terms short. However, there was some talk about the banks themselves packaging bundles of the notes as equities, which in my mind would be a pretty smart move for them. Especially since one banker noted that they have a 100% on time payment record for ALL their fractional loans. "Not one late payment," he stated. There must be some retiring baby boomers who would LOVE to be practically guaranteed a 7.5+% interest income, don't you think? I say package those equities and sell them locally to rich hippies in Marin.

Finally, Supervisor Sean Elsbernd spoke, noting with a laugh that in spite of his 100 Plan C pro-homeownership score he is the only rentor on the Board of Supervisors. (Not many TICs for sale in Discrict 7.) He conceded that the short term outlook for City pro-home ownership legislation was bleak. However, he seemed uplifted by the prospect of the November 2008 elections, as four supes will then be terming out, meaning there is a real opportunity to change the perspective of the Board of Supervisors on this and other topics. In the meantime, he asked, keep the calls and cards and letters coming. "Pick up the phone, call the Supervisors, go to City Hall." Pro-tenants groups tend to have a larger physical presence at Supe hearings and meetings, Elsbernd pointed out. "My colleagues see 50 people on one side of the aisle, and 5 on the other." ("Of course," one audience member called out, "home owners have full-time jobs.") Plan C promised to be the conduit for letting people know when home ownership issues are on the Supes' agenda. Note: in the past ten years the free market has done far more for TIC home ownership in the City than anything that has happened at City Hall.

Walking out I met a young couple, former renters who had recently purchased a TIC. "It changes your life to go from being a renter to being an owner," they commented. "We are out in our neighborhood, picking up garbage and planting trees." And in the end isn't that what holds a City together? People who are putting down roots?

Pro-Homeownership Supervisors

According to a study by Plan C, Supervisors Sean Elsbernd and Michela Alioto-Pier deserve our thanks for a consistently strong pro-TIC voting record. We encourage our readers to join Plan C members in sending these Supervisors an e-mail thanking them for their support: Michela.Alioto-Pier@sfgov.org and Sean.Elsbernd@sfgov.org.

At Home in the Modern TIC

KB and I, possessed of late by dreams of a stand alone home in some remote and far away high desert, attended the Dwell Design Conference exhibition this past Saturday. The exhibition featured an array of the new modular pre-fabs, like WeeHouse, that are all this moment's architectural rage.

Stacks of lovely Dwell magazines were laid out for the taking at the check-in. Lo and behold, on page 254 of the October issue is an article extolling the virtue of tenancies-in-common. "What attracts most people to TICs," says Dwell, "is their cost - up to 20% less than a condominium." It also compares the process of purchasing a TIC in San Francisco with the ordeal of passing co-op muster in New York. Score another for the left coast.

(Sorry, no links. The article isn't posted on dwell.com.)

Wow, now I feel so very hipalicious being a TIC owner.

At Home in the Modern TIC

KB and I, possessed of late by dreams of a stand alone home in some remote and far away high desert, attended the Dwell Design Conference exhibition this past Saturday. The exhibition featured an array of the new modular pre-fabs, like WeeHouse, that are all this moment's architectural rage.

Stacks of lovely Dwell magazines were laid out for the taking at the check-in. Lo and behold, on page 254 of the October issue is an article extolling the virtue of tenancies-in-common. "What attracts most people to TICs," says Dwell, is their cost - "up to 20% less than a condominium." It also compares the process of purchasing a TIC in San Francisco with the ordeal of passing co-op muster in New York. Score another for the left coast.

(Sorry, no links. The article isn't posted on dwell.com.)

Wow, now I feel so very hipalicious being a TIC owner.