Get the Government Out of My Toilet

The Examiner reports that the City may be mandating low flow toilets, faucets and showers in all residential buildings. "The proposed law would require toilets, faucets and shower heads be low-flow in residential buildings when the building is sold or when it undergoes major improvements, converts into a condominium or undergoes a meter change."

I see the merit from an environmental perspective. But on the other hand it is just another imposed expense for TIC owners who are converting to condo.

Also, living in a 100 year old building with a mish mash of old and new plumbing, let me tell you - my water pressure is not great. I don't think my shower could be much more lower flow.

Home Values in My Neighborhood

Apparently condo/TIC values in Hayes Valley have decreased about 10% over the last year. Considering how much other asset classes, like stocks, have plummeted in the same period that is not too bad. Since I bought into this building in 2000 I feel like I'm still ahead of the game. (I don't feel that way about the investments in my IRA.)

TIC Auction a Sham

Reports indicate that the "TIC auction" at 3731 Fillmore was a sham. Apparently it was an unethical marketing ploy and not an actual auction. Too bad, this could have been a legitimate way of allowing buyers to purchase surplus inventory in a down market.

TIC House of Cards?

Socket Site has an interesting post and comment thread about an 800 square foot TIC property at 3731 Fillmore going up for auction at 1pm tomorrow - February 24. This is a 6 unit building with leased parking. According to reports only one other unit has been purchased and is owner occupied. The bidding will start at $295,888.

The comments raise a lot of good questions about the value of TICs in this down market, the virtues of renting versus buying right now, and the strategies TIC developers (and banks) might devise to get properties off their books now that units have stopped selling.

It also raises the spectre of ghost partners. I'd hate to be that sole owner occupier in a building where the rest of the units remain in the hands of the developer speculators.

Basic Building Maintenance

Who do you call when a water pipe breaks in a common area, or a light bulb burns out in your hall? Who pays your building's PGE bills, property tax bills, and insurance? Our TIC group has decided to manage all of these things in-house. One of our partners receives a stipend (about $250 per month) to manage basic maintenance and accounting on our 6-unit building. At the end of each fiscal year he sends all the TIC partners a simple spreadsheet via email.

The X axis column headings show:
(+) Total Dues Collected
(+) Interest Income
(-) PGE
(-) Plumbing
(-) Bank Fees
(-) Legal Fees
(-) Fire Alarms & Extinguishers
(-) Insurance
(-) Stairs, Locks & Misc. Repairs
(-) Gardening Supplies
(-) Cleaning
(-) Garbage
(-) Water
(-) Property Tax
(-) Management Fee

The Y axis rows are all the months of the calendar year, January through December, with a summary row totaling all the expenses for each month and for the entire year, including the balance we have left in the bank.

Each year we assess what we are putting into the house account through our dues versus what we are spending (on average) on these routine expenses. Our goal is always to have enough operating capital year over year to cover these essential items.

Our group does not keep a large amount of money in reserve - it's usually about $10,000. That is because if anyone decides to sell, reserve money stays with the house. So we base our dues on basic, ongoing expenses. If a major project comes up, like a roof replacement, everyone pays a special assessment.

This is just one way to manage TIC maintenance and accounting in-house. Every group might do things a bit differently. In my view, the three key elements are

1) a responsible, qualified partner who can manage basic home repairs, pay bills on time, manage the bank account and maintain a reporting spreadsheet.

2) a willingness on the part of the group to clearly define these duties and pay the partner who is doing the work a fair stipend.

3) an understanding that larger, more complex projects outside of the scope of day-to-day maintenance may require other partners to pitch in from time to time.

A Good Thing About TICs

I've been writing about the economic downsides of TIC financing, so I want to counter those arguments by pointing out what I consider to be the best thing about owning a TIC. Quite simply - you get to choose who your building partners are. In Manhattan, where I grew up, buildings known as co-ops are considered more exclusive (and are priced higher) than condos for that very reason. A co-op is a different legal entity than a TIC, but operates in a similar fashion. (In a co-op, or stock co-operative, you get shares in the building. With a TIC you own a percentage of the property.) Not just anyone can buy into a co-op - and not just anyone can buy into a TIC.

If you are a group forming a new TIC you must meet, disclose your finances and approve of each other before moving forward. I would advise any prospective new TIC owner to make sure that your realtor adds a no conditions contingency clause regarding the meeting of other partners. That means that you require meeting all the partners before closing and if you decide that you don't feel good about them for any reason you can back out. It is best in a new group for all prospective owners to get together and meet at one time. Then you can get a feel for the group dynamic as well as learn about individuals one on one.

After a purchase, all the partners of a TIC building typically have the right to interview any prospective new owner and accept or reject the buyer. The parameters for rejecting a buyer are defined in your TIC agreement. Your group can make those as broad or narrow as you like. (Within the limits of the law, of course. You cannot discriminate based on gender, race, etc.) Usually these clauses in your agreement attempt to strike a balance between what is fair to a selling partner and what is considerate to the remaining partners.

With a condo, you have no choice about who your neighbors will be.

Condo Lottery 2009

The condo lottery takes place on February 4, 2009 at 9:00am in City Hall, Room 400. If you want to join the show, Plan C will be there with free coffee, rallying on the City Hall steps at at 8:15am.

Our building has five tickets in Pool A. 100 tickets are pulled first from Pool A. Then all the remaining unpicked units in Pool A are added to Pool B and another 100 units are drawn. A total of 2,030 individual units are entered into this year's lottery. I am not sure how many are in Pool A, so I am not sure what our odds are.

By the way, the City - strapped for income - is floating a proposal to expedite condo conversion if owners pay a special fee. In other words, TIC owners could pay to jump the lottery line.

This would allow the City to take in some short term dollars, while creating jobs for contractors because the condo conversion process typically requires buildings do some renovations before converting.

The idea probably won't go anywhere and if by some freak of nature it did I am sure the pay to play would not be cheap. (My guess is $10,000 or more.) The anti-home ownership lobby is already out there beating the drums decrying this as another way to toss poor renters out into the street. Also some condo owners are whining, claiming that they paid a premium not to be in a TIC and this is unfair. (Boo hoo.)

As one of my building partners put it "Should we be crossing our fingers or bending over for a huge screw from the city if we win? Perhaps both..."

Why does my building partner equate condo conversion with a huge screw? Time, cost and rigamarole - condo conversion can put building owners at the mercy of government bureaucracy, lawyers and contractors for nearly two years. (Kaching.) All for the privilege of being able to get a traditionally priced mortgage.

My take on the City's proposal? I don't trust it. At present it can take 8+ months just to arrange the initial building inspection required by the City for conversion. If TIC owners are offered the opportunity to buy their way to conversion, they should also be given some guarantee of fast tracking their way through the process. Otherwise the City might try to get it both ways. Owners who want to convert will put out a lot of cash while the actual process of converting slows to some even more glacial pace at the behest of the anti-homeownership lobby.

Sorry for sounding somewhat disillusioned. After so many years in the lottery I am not exactly little miss sunshine when it comes to this topic.