SF TIC

Married to Your Partners

2011-11-22T19:22:00.001-08:00

Make no mistake when you enter into a partnership with the members of your TIC it is in large part a business, but it is also some strange extended family part of your life. What do you do, if after ten or fifteen years, your partner becomes a raging alcoholic?

We have one in our building. We used to be friends with the couple downstairs. We'd go out to dinner in the neighborhood. Get together on Friday night to have a drink and unwind. Bond over all we've been through in the building, and share our dreams for where we might be a little further on in our lives. For ten years we went along in this more or less congenial fashion. Not best friends, but friendly.

Then the midnight rages began. And the desperate knocks on our front door, from the partner who felt threatened by violence. And then we had to suffer through the other partner standing outside, threatening us, because we opened our door to the one who knocked in fear.

I love my old building, and I've had great affection for most of my partners over the years. We've lived together, and spent a fair span of our lives together. But when someone is banging on your door, drunk, at five o'clock in the morning, calling you names from every ring of hell that Dante could dream of, it's amazing how fast whatever love you had disappears.

City Approval

2011-11-22T19:14:00.000-08:00

So we made it through the inspections, the work to remedy the building code violations found in the inspections, the reinspections, and the search for various permits on work done long ago. We got on the Planning Commission docket, and although some "strange guy" (according to our lawyer) showed up to babble something about the evils of condo conversion, we received the tentative approval, and, yes, on paper, the final approval.

We have a couple more months of deliberations at the state level to shuffle through.

Was It Worth It?

2011-08-08T21:49:00.000-07:00

Was it worth buying a TIC versus a condo, from a financial perspective? Over ten years ago, when I was a single woman trying to buy my first home in San Francisco, the real estate boom was just starting to heat up. I was relatively conservative and did not believe the cheerleading of the mortgage brokers who claimed I could afford a $500,000 loan. Based on my take home pay, I felt I was in a $250,000 price range. I had about $50,000 for a down payment. In other words, I was, even ten years ago, priced out of the market.

In 2010 not many buyers would touch a 6-unit TIC. The whole concept of a TIC was viewed as incredibly risky. Most realtors advised strongly against them. I just happened to be walking down the street in my neighborhood, and strolled into this building for a looky loo. At that point I was no longer trying to buy and was more or less happily resigned to being a renter. Back in 2000, a one bedroom TIC unit, in this 1910 Edwardian building, with good bones and great historic details, was listed for $250,000. It has also been a rental building for over a decade, and had not been very well maintained - by either the owner or the tenants. So it needed a huge amount of work. You had to have a good amount of imagination to see the charm in this building when it was put up for sale with its crumbling plaster, multi-layers of linoleum, decrepit, unusable fireplaces and so on. But I fell in love with this old building, and plunged naively, blissfully forward.

Looking back, all things being equal, wouldn't it have been smarter, easier and even less expensive to buy a $300,000 condo? For the condo I could have put the $50K down, and taken out a $250K loan at 6% for $1,500 a month. Instead I borrowed $200,000 at 8% interest and paid... yes, more or less the same $1,500 serving the loan. Plus I would not have incurred the thousands it cost to renovate an old house, as well as the cash I am dishing out right now to condo convert.

I think it is all about the particular property. In this case, our neighborhood went through an amazing renaissance in the past ten years, boosting property values, and keeping them high, even through a volatile economy. And while there are plenty of condos being built, there are not any more historic Edwardians, framed in old growth redwood, with all the charm of old San Francisco. So I like to think I've done all right by this old place, and it's done pretty well for me also.

The List

2011-08-08T21:23:00.000-07:00

Some of you may think I am exaggerating about the list of things that we must do. We are a six-unit building so we do have a bunch of paperwork that needs to go to the state, as well as the City. If you have less than six units you don't need the state documentation, so your list won't be as long. Lucky us!

Title company's check-list for the state application:

A) Estimated completion dates of City inspections and necessary repair work:
1. Entire project
2. All common areas
3. Residential units

B) Legal documents from your lawyer (approved, final version for submittal to the DRE):
1. Declaration of Covenants, Conditions and Restrictions ("CC&R's")
2. Bylaws
3. Articles of Incorporation (will the Homeowners' Association be incorporated?)
4. Articles of Association (will these articles be used?)
5. Sample Contract of Sale/Purchase Agreement
6. Existing Subdivision Interest Disclosure Form (if applicable to the project)
7. Form RE 648 Check Sheet

C) All documents from engineer/surveyor:
1. Tentative Subdivision Map
2. Tentative Map Approval
3. Conditions of Approval
4. Condominium Plan (if applicable)

D) DRE submittal:
1. 3-R: Report of Residential Building Record- Please provide a copy of the most current 3-R report, Report of Residential Building Record. If not available, please obtain one from the San Francisco Department of Building Inspection.
2. Form RE 639, Supplemental Questionnaire:
Attached is a copy of the completed, executed RE Form 639. Please provide (via e-mail) the following items:
a. Items 2A1 and 2A2, Page 1 - Copies of paid invoices and cancelled checks for the work completed in June 2010 (exterior and trim painting) and March 2011 (hot water heaters) for DRE's verification purposes.
b. Item 2B, Page 1 - As the roof is 6 years old (see item 2B), please provide a roof certification completed by a licensed roofing contractor. The certification should be on the contractor's letterhead and should indicate the useful and estimated remain ing life of the roof, its present conditions and the cost to replace.
c. Item J, Page 2 - Copy of complete/entire 3-R Report - Report of Physical Inspection issued by the Department of Building Inspection, City and County of San Francisco. This report should include: electrical inspection report, plumbing inspection report, structure inspection report, etc.
d. Item L, Page 2 - Copy of Certificate of Final Completion and Occupancy issued by the Department of Building Inspection, City and County of San Francisco.
e. Item 4A, Page 4 - Copy of written notice of intention to convert and notice of tenant's first refusal.
f. Item 5, Operating Statements, Page 4 - Please provide copies of the income and expense statements for the last 3 years.

E) Complete budget package (approved, final version for submittal to the DRE, not a draft):
1. RE Form 623 HOA Budget
2. RE Form 624A HOA Common Facilities List
3. Reserve Study
4. Utility bills for the last year

Breakup Time

2011-08-08T21:10:00.001-07:00

They say that the stress of a big home renovation can break up a marriage, and I will say that the process of a condo conversion, especially with a 6=unit building, does put a strain on the partners in a building. There are a lot of things to do, and inevitably one or two partners end up doing most of the work. Or maybe it is that even if everyone is doing some part of it, each individual starts to feel like he or she has taken on the lion's share. Someone must be home to let in the various inspectors and contractors. Someone has to make sure all the various contractors are paid in a timely fashion. Someone must organize getting the various papers notarized and walked around to different City departments. Someone must deal with documenting the building's finances, in preparation for forming a condo association. There is the title company stuff, the legal stuff... it seems like the list goes on and on.

Meanwhile, half the partners are starting to think about selling, once the conversion is done. After ten years, is it time to cash out?

Nerves start to fray. Disagreements start to happen. And yet the condo conversion deadlines keep rolling, and everyone struggles to stay polite enough to get through it all.

City Inspections: Building Department Records Search

2011-08-08T20:52:00.000-07:00

We are in the last stages of going through the City electrical and plumbing inspections. It has taken us longer than we anticipated for two reasons. First, one of the inspectors misplaced some paperwork from his initial visit, so we had to wait for the paperwork to be completed a second time. Second, it was unclear whether one of our units had pulled appropriate permits for a kitchen and bath remodel, back in 2000. The city's online database did not show the necessary permits, so the inspector could not sign off on that unit for the condo conversion.

Luckily, the City's Building Department allows anyone to submit a form for a records search. You can download the form from the building department website, specify exactly what records you are searching for, and they will review all the microfiche, paper and electronic archives. I have to say the process was made very easy for us. After we mailed in the records search form, a clerk from the Building Department left us a voicemail message confirming they had received the request. She also stated the date when copies of any found records would be available for pickup. They charge a reasonable per page fee for making paper copies.

By great luck, the search turned up the records we needed. Without documentation of those permits and inspections, the owner of this unit would have had to open walls for the inspectors to see the plumbing and electrical work. The inspectors' job is ensuring the work is done safely, and without the documentation of the inspections, there would be no other way for them to certify the safety of the work. This work was done over ten years ago, and the unit had been sold twice over those years. So the current owner did not have any of the paperwork, and had no way of contacting the original owner.

So this leads to two pieces of advice. First, if you are part of a TIC that is able to enter the condo lottery, make sure everyone in your building is getting appropriate permits and inspections. Don't just take people at their word - get copies of the inspection sign-offs for plumbing, electrical as well as the certificate of completion. Keep these with your building records, so they are easy to find when it's time for you to go through the conversion.

Second, if the work was done years ago, and you don't have the records, take advantage of this City records search service. It could save you a lot of time and money.

Getting Ready for the City Inspectors

2011-04-01T17:47:00.000-07:00

The City inspectors will be here early next week. We've spent about $10,000 total fixing some things that were identified by the pre-inspection as code violations. For a six-unit, 100 year old building that is a pretty reasonable amount of money.

The upcoming inspection has galvanized everyone in a positive way. We all want to address any potential safety issues with our electrical, plumbing and stairways. We've cleaned up the common areas, hauled off some junk, spiffed up our units, and given our old building a polish and sparkle.

I cannot say enough good things about our contractor, Rick Cerutti. He is smart, funny, detail-oriented, conscientious and knows the building codes. He is sensitive to the complexities (and occasional mysteries) of working on a historic building. The guys on his crew even took my neighbor's dog for a walk! So here is his contact information, if you are looking for an excellent contractor: mceruttibuilders@comcast.net.

But get in line, because after the inspection we will probably have more work to do.

City Inspection First Week of April

2011-03-11T21:22:00.001-08:00

The group met and reviewed the pre-inspection report. Everyone worked well together and we had a very productive session. I guess after ten years living together we have figured out how to deal with each other.

One of our TIC owners is a licensed civil engineer, so that helps a great deal when reviewing building codes, and assessing what can and should be done.

We have decided to address basic things in our pre-inspection report, such as ungrounded electrical outlets, gas heater strapping, safety pans for our stoves.

We are going to wait for the City's official inspection to make decisions about bigger ticket repairs, such as replacing wall heaters, our common laundry area, opening up walls for electrical inspections and so on.

Because some of the renovations on our units took place ten years ago, the City does not appear to have complete permit records online. So we also need to either dig up paper records in our files, or try to find records on microfiche, so they can be available when City inspectors arrive.

They are coming the first week of April... This will be the biggest test for how high the hurdle will be to condo convert our 101 year old building.

Pre-Inspection Report

2011-03-04T20:02:00.000-08:00

We've received our written pre-inspection report. This is an optional inspection by a former City inspector, to help identify things the actual City inspectors might cite us for, as required for condo conversion. Here is one of my partner's response to the document:

"I'm not terribly impressed with his report. For $600 I guess it will do... Certainly a few inaccuracies that we should address with him and have corrected. For example, my 220 electric for laundry was permitted and signed off - thankfully I kept copies. He outrageously suggests that I should remove $5000 worth of permitted laundry??? I don't think so!!"

And another: "A number of things on my list are not applicable - looks like he just cut and pasted."

Because some of our unit remodels go back to 2000, in many cases, he directs us to research permits on microfilm. It would have been helpful on this document to have been given a clue about where we go to do this. How would the average homeowner know the process for researching ten-year old inspections and permits on microfiche? Like, a URL or the name of the City department at least. I suppose there is a department called Building Inspection, but with this City you never know. After all, the condo lottery is managed by the Department of Public Works, Bureau of Street Use and Land Mapping Division. That's intuitive!

Note that on things like a kitchen "remodel" there needs to be separate plumbing, electric, AND general building inspector permits on file. What a crazy city. To put a new appliance in your kitchen you might need three inspector visits. No wonder the city has almost 30,000 employees.

Anyway, the list we have been given overall doesn't look too bad. We have a good contractor lined up to get work done.

The group will be meeting this Sunday, to decide what on this list we should address before the actual inspectors arrive.

Okell's Fireplace

2011-02-21T12:56:00.000-08:00

Condo conversion is quite the cottage industry. It's a business pipeline for home repair merchants in the City.

For example, the pre-inspector says our old wall heaters have got to go. So we are all looking at options - from simply installing a new wall heater to going for a big upgrade - like a gas fireplace.

We went over to Okell's Fireplace this morning. The salesman said they do a lot of work for TIC owners who need to replace wall heaters. They have every type of in-wall and freestanding fireplaces imaginable. Very cool!

I would love a little fireplace. I'd like the flat to the wall zen style, with rocks on fire. But I can't vent up through our beamed ceiling, so we'd need to build something quite elaborate to accommodate my little zen fireplace.

Given all the other things that need to get done for condo conversion, can we afford the time and cost of building something this complex right now?

City Permits and Inspections

2011-02-21T12:40:00.000-08:00

It was always assumed in our building that owners would have work done in their units with proper City permits and inspections. This was plainly stated at meetings, and it may even be in our TIC agreement. (It should be part of all TIC agreements.)

Surprisingly, we have just discovered that one of our owners had a significant kitchen remodel done with NO permits or inspections. This owner spent many thousands of dollars a couple years back having everything done perfectly to his taste. But now walls in that perfect kitchen must be opened for City inspectors to re-check and permit the plumbing and electrical work that was done.

This owner is throwing a fit. But whose fault is it? It's the owner's responsibility to tell the contractor all work must be permitted and inspected.

People, if you have any chance of converting to condo, do not skip getting permits and inspections. It's going to cost you a lot more later rather than doing it right the first time.

Does Your TIC Agreement Require Condo Conversion?

2011-02-21T12:22:00.000-08:00

Does your TIC agreement require condo conversion if your building wins the lottery? That is something you should know before you buy into a TIC.

If your agreement mandates conversion, and you live in a building with a fair chance of winning the lottery (ie no protected tenant evictions, etc.) your group needs to have a pool of funds ready to go for the costs of condo conversion. Condo conversion is a significant expense, for the group and possibly for individuals as well. And this is on top of your regular dues, taxes, mortgage and insurance, which must continue to be paid through the conversion process.

All the bills for condo conversion come due in fast and furious progression. Make sure your group has discussed how to handle, and has a financial plan, so you don't waste time figuring this out after you win the lottery.

For common condo conversion charges, you can either build a condo conversion fund into your dues or you will need to levy special assessments. For code violation repairs to individual units, each owner is responsible for any work from the walls in. Make sure owners are aware of this. There should be ongoing reminders at your meetings about the need for individuals to have a savings account set aside for condo conversion.

If your TIC does not mandate condo conversion, then you must have a process outlined in the agreement for determining whether you will or won't convert. Everyone in the group needs to be aware of this process, and you may want to revisit this issue from time to time and amend the agreement as necessary. I think leaving the question of whether to convert or not to convert could be a very divisive issue, if left up to a vote that occurs after winning the lottery.

Pre-Inspection

2011-02-21T11:48:00.000-08:00

On the advice of our lawyer, we hired Leo McFadden to pre-inspect our building. Condo conversion requires having the City building inspectors come in to check if your building is up to code. Any code violations the inspectors find must be repaired - whether or not you condo convert. A pre-inspection gives you an assessment of what City inspectors are likely to cite you for, so you can estimate repair costs before having the City officially come in.

Let's get to the juicy part first. If you Google Leo McFadden you will see he used to work in building code enforcement for the City, but resigned after the San Francisco Chronicle accused him of being at the "center of an ethics controversy." Apparently he formed a real estate holding company that held ownership interest in several San Francisco residential properties. From what I can tell, Leo's company would buy, renovate and flip properties that had been cited for code violations. My sense is the owners were in over their heads, trying to maintain old buildings. They went the cheap route - having shoddy work done without permits. When they got cited, they would bail and sell the property. Of course it is possible to take a darker view, and imagine a little band of thuggish inspectors roaming around looking for run down properties so they use the threat of endless citations to strong arm owners into selling.

But when the accusations were made, back in 2005, the City's Ethics Commission said city employees - including building inspectors - were free to buy and sell real estate provided they are not privy to or acting on information that is not available to the general public. Also, a city controller's review found no evidence of San Francisco building inspectors buying up property under review by their agency. To me, Leo seems like a decent guy who took advantage of an entrepreneurial opportunity, one that his job did not expressly prohibit. And he ended up a victim of yellow journalism.

Anyway, he resigned from the City, and went into business for himself. He certainly knows his stuff. He did a careful walk-through of our 100-year-old building, and pointed out things we will almost certainly be required to change - like our old gas wall heaters. We will be receiving a detailed written report shortly. This lets us get a jump on projecting costs and lining up a general contractor.

Solicitations from Everyone

2011-02-21T11:37:00.001-08:00

As soon as you win the condo lottery, your mailbox will be filled with solicitations from lawyers, surveyors, pre-inspectors, and what have you. Yesterday I received a beautifully presented folder of information from a surveyor. This package must have been costly to produce and mail. But we have already hired our surveyor!

My advice to those who are trying to solicit condo conversion business is:

- Build relationships with the law firms that handle condo conversion. Most TIC groups will use the vendors recommended by their lawyers.

- Try to build some kind of relationship with the TIC owner community on an ongoing basis. You can do this by attending Plan C events, offering free educational information online or at events, etc.

- Don't wait to mail your solicitations. Prepare your materials, attend the lottery drawing to get the winner names and mail solicitations out the next day.

Timing is Everything

2011-02-11T21:57:00.000-08:00

If we get our conversion done prior to January 2012, we will avoid PREPAYING over $40,000 in property taxes. Needless to say we are now dashing around at full speed.

1. We have hired a law firm.
1. Title company will be emailing our prelim. title info within 3 days.
2. Trying to figuire out if DRE is required.
3. Building will be surveyed this Sunday.
4. Pre-inspection on Friday, February 18th - to prepare us for the actual City inspection.
5. 3R Report has been requested from the City.

Quite a bit of Kafka-esque paperwork and bureaucracy. Quite the cottage industry for all these service providers.

Thank You To My Group

2011-02-05T20:49:00.001-08:00

If we were a reality TV show, our TIC group might be called Three Queens, Two Dykes and a Redneck. We are all such different personalities and yet...

Over the course of eleven years, we've gone from being relatively young, single, starry-eyed, first time San Francisco property owners to a middle-aged, settled-down, jaded-by-the-costs-of-owning-a-100-year-old-building group. We've seen lovers, many lovers, coming and going up and down our terrazzo steps. (And sometimes heard more than we wanted to through the floors and walls.) We've had fights - raging fights. I once didn't talk to someone for almost a year, because she freaked out on me after I took all of the paint cans that she had hidden in a garbage can to the recycling center. (I did not think the City fire inspector, from whom she was trying to hide the paint cans, would look kindly upon this kind of deceit.) We've had someone leave a candle burning in their unit that caused the fire department to break down doors looking for the conflagration. We've battled homeless people break-ins, the million decibel parties of the 20-something renters next door, and another neighbor who tried to make us pay for his cracked 100 year old sewer pipe. And let's not mention the gas leak, which caused us to discover that the old gas pipes in one unit has been capped with a wine cork - causing PGE to cut off gas service until we could find a little Burmese plumber small enough to fit in the ceiling crawl space and take care of that deadly problem. (Of course this happened in winter. Thank Buddha Jesus Goddess for electric heaters.) And let's not forget the year plaster began falling from the 100 year old facade at the top of our building. That was when we discovered that the facade was made from some old time mixture of rock, clay and horsehair which seemed to weigh about 50 pounds a square inch. And the roof above the facade was leaking, and the location of this roof was almost impossible for any contractor to reach, without building some kind of outer space like contraptions. Miraculously the roof was repaired, and no one died - neither the contractors balancing on the contraption nor the innocent people walking the streets below.

But somehow, even with all of this, over the many years of living as TIC partners, we can still show up at a birthday party and have a good time together. We've all still got good, stable jobs. Everyone is smart, and although the choices we've been presented with have not always been the best, we've never made a decision that we truly regretted.

So this is a thank you to my TIC partners, as we enter this condo conversion madness.

What Will It Cost?

2011-02-05T19:53:00.000-08:00

The first flurry of emails among our group focused on the projected costs of condo conversion. How much will it cost and how will we pay for it? We knew this was something we would need to do someday - our TIC agreement mandates that if we win the lottery we must condo convert. However, our group has a policy of using dues for routine expenses and special assessments for projects like higher cost maintenance and repair. (That's because if/when you sell you cannot withdraw the money you contributed to the house fund.) So in our building everyone is supposed to keep a personal reserve in the event of a large special assessment. Well, it's been so long in coming, I'm not sure everyone in our group is fully prepared financially for the burden of condo conversion. After so many years of losing, it feels like an impossible possibility has suddenly become a reality.

So the first thing we are doing is levying a special assessment, to get some money in the hopper for the kick-off condo conversion costs, like hiring a lawyer. Hopefully everyone will be able to pony up without too much trouble.

For our 6-unit building we are estimating the basic costs of condo conversion to be close to $30,000. That does not include any repair work we might need to do as a result of the required city building code inspection.

Estimated Condo Conversion Charges as of 2008
(6 unit Bldg):
City Application $8,897
3R Report $160
Survey and Mailing (varies w/building size) $9,000
Budget Preparer $4,000
State Application $1,700
City Inspection (varies w/building size) $2700
Attorney fees $5000

Data taken from Andy Sirkin's website: www.andysirkin.com

Dear Property Owner

2011-02-05T19:42:00.000-08:00

The City has posted the winners list for the condo lottery:
http://bsm.sfdpw.org/subdivision/lottery/

Here is the text from the letter sent by the City:

Dear Property Owner,
Congratulations! On February 2, 2011, your ticket was selected as a winner in the 2011 Condominium Conversion Lottery. Your fully completed application must be submitted on or before Friday, July 28, 2011. If it is not received on or before this date, your name will be dropped from the eligible list and the next person on the standby list will take your place.

You may obtain a Condominium Conversion package on line at www.sfdpw.org or at 875 Stevenson Street, Room 410, for $4. We strongly recommend that you retain an attorney that is familiar with the condominium conversion process in San Francisco to assist in your conversion.

We suggest that you contact the Department of Building inspection at 558-6454, or in person at 1600 Mission Street, as soon as possible to arrange for a Physical Inspection of your property, as assigned by Subdivision Section 1381(a)(2).

Your condominium map and unit diagrams must be prepared by a licensed Land Surveyor or a Civil Engineer licensed prior to 1982. You should obtain these services as soon as possible.

If you you have additional questions please contact my staff at (415) 554-5827.

We Won the Condo Lottery

2011-02-02T11:31:00.000-08:00

We bought our TIC in 2000 - after living here for 11 years, our building was finally picked in the condo lottery on February 2,2011! We had seven tickets, and were in the double A pool for long time entrants.

One of the other owners of our building went to today's drawing, which took place at City Hall. Plan C was there, staging its annual TIC owner rally. One of the newly elected supervisors, Mark Farrell, from District 2, personally congratulated winning owners.

After winning, one owner stood up and said, "Sayonara, Bolsheviks!" before walking out.

The official Condo Conversion Winners and Standby List will be published by the City on February 9, 2011.

Also...sorry for the long blogging hiatus, but things were just going along, TIC life as usual for the past year or so before today. I'm going to resume blogging regularly now, to shed light on the condo conversion process from the owner's perspective.

And then I'll conclude the blog, because in about 18 months we won't be a TIC anymore.

American Terrazzo

2009-08-18T10:03:00.001-07:00

One of the most challenging things about being in a TIC is keeping your building maintained. Even in this down economy it can be hard to find reliable contractors who do quality work at a good price.

Our 100 year old Edwardian building is always a work in progress. This spring, our beautiful terrazzo stone steps started to sag. Of course we all went through a prolonged period of denial, perhaps hoping these stone steps would lift themselves back up into place. Finally a general contractor doing some kitchen work for one of our partners noted, "if you don't do something about this little step problem now you are going to have a very costly repair down the line."

So we did some research and found American Terrazzo. They just finished our front steps, and they look fabulous. Aside from the great end result here is what I liked about them:

- Their estimate covered a range of possibilities, so we would have a good idea of the best case and worst case scenarios before signing the contract. (For example, they noted that it was possible for a step to break during the repair process, and if this happened, the replacement step would be an additional charge.)

- They came out twice to inspect the steps before beginning the work. They really examined the problem and took their time preparing ahead of time.

- The work schedule minimized the inconvenience of the loss of use of the stairs.

- At the same time, they did not rush the process. They did careful and thorough work.

Highly recommended: www.americanterrazzo.net

Real Estate Crash: How's Your City Doing?

2009-07-08T09:15:00.000-07:00

A provocative infographic tracks peak to trough home value fluctuation in 21 markets across the U.S. from 2000 to 2009.

Regarding the San Francisco chart, one comment queries, "I'd love to know what area falls into the San Francisco bucket. Everything from the city down to San Jose is pretty solid...maybe -5% tops."

This seems to be true in my neighborhood, at least for the moment. A 1000 square foot Victorian era cottage with no parking and a washer/dryer that required walking outside and around the house to access was on the market for one week and sold for an $875,000 asking price. That's $875 a square foot. This astounded everyone in my building, given the state of the economy.

One caveat to keep in mind. The co-author of the article is Henry Blodget, the controversial equity research analyst who achieved fame during the dot com boom and is now barred from working in the securities industry. He has parlayed his insights and infamy into consulting work, and is the Co-Founder and and Editor in Chief of the blog Silicon Alley Insider.

Does the Tenants Union Own the Board of Supervisors?

2009-07-04T18:30:00.000-07:00

It is incomprehensible to me how the Board of Supervisors could pass the so called "Renters Economic Relief Package." I agree that the government should have regulations in place ensuring that landlords maintain buildings in order to maintain a basic standard for tenant health and safety. But that's it. Where do these people get off telling property owners that they need to accept sub-tenants and hardship cases who cannot afford rent? If you can't afford to live in the City why don't you... move to Sacramento? Who says anyone has the right to live in any particular place? You live where you can afford to live. Hopefully Newsom will veto this nonsense.

For those who are not aware, according to the Tenants Union website this package of amendments to the city’s rent control law consists of three parts:
•Suspend any rent increases which will cause a tenant’s rent to exceed 33% of their income if the tenant is unemployed, has had wages cut or is living on a fixed income and has not received a cost of living increase. This provision expands the law’s existing provision which enables the Rent Board to suspend rent increases based on “tenant hardship” by expanding when a tenant can apply for hardship and defining hardship as any rent increase which would cause a tenant’s rent to exceed 33% of their gross income.
•Expand the rights of tenants to add roommates to help pay the rent. This provision will let tenants bring in roommates so that the rent will be more affordable. The number of roommates would be limited by San Francisco Housing Code provisions which establish occupancy limits based on the size and number of bedrooms in an apartment. Currently landlords are able to limit the number of tenants to levels below what the law allows.
•Limit the amount of “banked” rent increases which can be imposed in any one year. Current law allows landlords, to “bank” annual rent increases and impose them all at once at a later date, often resulting in rent increases of 20% or more. This provision will limit these banked rent increases to no more than 8% in any one year.

West American Mortgage Response

2009-07-04T18:21:00.000-07:00

I queried West American Mortgage about the 5.875% percent fractional loan rate they have advertised for 735 Geary. The TIC loans available through West American at that rate are only for this one specific building as the owner is the backer for the financing.

2 Bedroom TICs Listed For Under $450,000

2009-06-28T08:48:00.000-07:00

I haven't seen prices like this since the early 2000s. It looks like some sellers are aggressively pricing TICs to compensate for the ownership structure and higher loan rates. That is the point of TICs in the City - to offer affordable opportunities to middle income buyers. There are good buys out there - just make sure to choose carefully and do appropriate due diligence. Buying now is just like it was in the old days - a long term proposition.

2025 Ofarrell #3 - $399,000
Very Motivated Seller! Delightful 2 Bd/1 Ba unit in a quiet, classic building. Remodeled in 2005, this light-filled home offers coved ceilings, hardwood floors, stainless steel appliances, granite countertops, and beautiful bay windows. This perfect new home also has common laundry and storage. Conveniently located in the center of the city with easy access to public transportation. 6 unit TIC. No parking.

557 Fillmore - $399,000
The semi-detached building where the unit is located was Seismically retrofitted and renovated from the studs out. The Kitchen has custom cabinets, granite counters, Bosch energy-efficient stainless steel appliances. The bathroom has a Villeroy & Boch double sink, & imported Spanish tiles. All new energy efficient systems & laundry hook-up. There is a shared rear yard with a large redwood deck. 6 unit TIC. No parking.

227 Guerrero #A - $439,000
Studs out remodel of 2BR/1BA, top floor view flat in the Valencia Corridor. Custom kitchen w/granite counter, maple cabinets, stainless steel appliances, dishwasher, bath w/subway tile and pedestal sink. Deck off of rear bedroom, landscaped backyard. Independent enclosed parking. Low HOA of $225. No Ellis or evictions! Minimum 10% down. 6 unit TIC.

Lower Fractional Financing Rates?

2009-06-26T22:09:00.000-07:00

735 Geary is a new 21-unit TIC that is advertising "Unbeatable fractional financing! 10 year fixed rate at 5.875%, with minimum 10% down payment with West American Mortgage." Not sure who this group is, or what kind of fees and points they charge, but that is the lowest fractional rate that I've seen advertised.

Just Say No To Partners of Building Partners

2009-06-21T23:06:00.000-07:00

The TIC partner who handles our accounting recently started copying the domestic partners and spouses of the TIC building partners on emails about building business. He made this decision unilaterally without consulting the group. In my view, this is wrong. We are a large TIC with seven building partners who are the deed holders and legal signatories to our TIC agreement. Five of those individuals have spouses or domestic partners. By adding these five wives, husbands, what have yous to the discussion of our building business we have gone from trying to come to a consensus with seven people to airing the views and opinions of twelve. Having to listen to the snarky comments of people who have no legal standing is, in my view, a waste of time. It adds to the complexity of managing the building and brings no value in return.

In my opinion, it is up to the legal partner to inform his or her spouse. The legal partner's comments and votes on building matters can reflect any private conversations they have had. But individuals who have no legal standing in the TIC group should not be involved in email dialogues or present at meetings.

Mortgage Relief and TICs

2009-04-20T18:40:00.000-07:00

With interest rates for single family residences and condos going through the floor some TIC owners are wondering whether they might qualify for "mortgage relief." TIC owners are paying over 7% for their loans so it is painful to think of how much lower the monthly payment would be if that rate was 2% less.

I am not the final word on the mortgage relief subject but here is my opinion. A fractional loan is a local aberration invented by a handful of Bay area banks. This does not change the nature of how the property is titled. A TIC building is still a single, multi-unit property owned in varying percentages by a group of unrelated people. This type of ownership structure is considered more complex and risky by lending institutions, because you have multiple individuals on title.

The economic meltdown has not changed the financing options for TICs. Your group must choose either a shared loan which everyone signs or individual fractional loans which require that everyone in the TIC finance with the same institution. There are advantages and disadvantages for the group loan versus the fractional loan. In either case, rates are high and TIC owners are not able to reap any of the benefits of lower interest rates that qualified single property owners may be able to get through refinancing.

On another front, there is a federal assistance program called Hope for Homeowners. However, I would not be too hopeful that this assistance will be forthcoming for TIC homeowners. The program offers owners who meet certain qualifications an opportunity to refinance to a less expensive loan. Any mortgage lender is going to want a lien against the property as collateral. My guess is the federal program is not designed to accommodate multi-unit buildings with multiple owners on title, but rather individuals who hold title cleanly on a single property. TICs are just too "out-of-the-box." And in this world of more constrained lending that's not a good thing. There are several HUD-approved Housing Counselors listed here for those who want to get more qualified advice.

If you are are a TIC owner (or group) looking for "mortgage relief" I would consider contacting your current lender. You don't have much leverage, because if you default the bank gets your property plus all the money you've spent on mortgage payments to date. In the San Francisco market most banks would probably be fine with foreclosing rather than cutting you a break. I don't know of any cases where a TIC owner has gone back to a bank and successfully ended up with more favorable terms. (If anything, banks seem even more tight fisted right now. I have one friend who wanted to pay off her entire mortgage. She asked Sterling bank to waive a year 3 - 1% pre-pay penalty so she could eliminate her mortgage sans penalty and they refused.) Still, it never hurts to have a conversation about what is possible. If you are persistent and practical you might be able to make your case.

Finally, another option to consider would be selling your TIC and purchasing a condo. Depending on the property you currently own and where you are looking to live, that may be a way to make a lateral move into a more or less equivalent space with a lower monthly overhead. There are some TICs that will sell in this market and there are a lot of new condo buildings looking to cut deals. This is not a flip suggestion - you will need to consider your individual situation and all the potential merits and hardships associated with selling and buying a new place.

Fishing

2009-04-07T22:25:00.000-07:00

I received a letter in the mail from a realtor at the Alain Pinel Investment Group. He claims to have "a client who is extremely interested" in buying a property in our neighborhood. He would like to know if I "would entertain any offers." Curious. What is this person fishing for? Seems to me that there are plenty of properties, even near this admittedly wonderful location, for sale these days.

Old Pipes

2009-04-07T22:07:00.000-07:00

My downstairs neighbor is renovating her kitchen. She was one of the original purchasers of the TIC when we bought the six unit building in the summer of 2000. At the time of the purchase the systems - plumbing, electrical - of this 1910 building were in sorry shape. Shortly after the purchase each flat went through a back to the studs renovation - except unit 3. For various reasons ten years went by before this partner did the necessary work.

When the contractor opened up the walls in this downstairs unit last week he found old water pipes that were literally crumbling. Small leaks behind the walls that had dripped for years had damaged one of the structural beams. We were literally days away from a major plumbing meltdown.

After being informed of this one of the other owners commented, "When we bought this place I wish we had written it into the TIC agreement that each owner had to complete their plumbing and electrical upgrades within a certain amount of time. Then this wouldn't have happened."

Too late for us. But maybe it's not too late for others. If you are buying into an older building make sure you know what the state of the plumbing and electrical is - not just in your unit, but throughout the building. And if you are buying a fixer upper with partners, consider adding a clause requiring systems upgrades to your TIC agreement.

Solar City

2009-03-21T10:21:00.000-07:00

We have a six-unit building with a big flat root in a sunny section of the City. So of course from time to time we have explored the possibility of going solar. To date, our group has decided that installing solar required to much of an upfront capital investment. However, with new government programs and private ventures like these becoming available we are going to re-open the discussion.

The City has moved forward with GoSolarSF, which offers residents up to $4,000, and businesses up to $10,000 to install solar power. Low-income residents and non-profit, multi-family residences can get even more of an incentive.

This is in addition to a California state incentive program Go Solar California. There's also a federal tax credit.

One interesting private venture is Solar City, which, in addition to regular installations, offers the option of defraying the upfront costs through long term leasing.

Get the Government Out of My Toilet

2009-02-26T10:03:00.000-08:00

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

2009-02-26T10:00:00.001-08:00

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

2009-02-26T09:56:00.001-08:00

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?

2009-02-23T10:06:00.000-08:00

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

2009-02-22T18:38:00.000-08:00

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

2009-02-17T09:24:00.000-08:00

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

2009-02-02T20:39:00.000-08:00

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.

1613 Noe

2009-01-31T21:51:00.000-08:00

Sign of the times - a lovely 2 bedroom Edwardian TIC flat, with a new kitchen, a fireplace, hardwood floors, and storage - located in quiet upper Noe. It looks sweet. Priced at $475,000. And you can try before you decide - the (obviously eager) seller will give you a lease to buy option.

Still the Same Houses

2009-01-31T21:27:00.000-08:00

In a recent quarterly newsletter investment guru Jeremy Grantham points out:

At three times the price, they were obviously still the very same houses. How could we kid ourselves that we were suddenly rich and didn’t need to save for our pensions when we were sitting in the very same buildings we bought in 1974?

I found this comment oddly reassuring. If you bought your home because you intended to live in it, and likely for quite a long time (as I did, back in 2000), then what "the market" came to believe your home was worth during this unfortunate housing bubble was somewhat irrelevant. Hopefully we are going to return to a time when having a home was something worth working and saving for and investing in over a long term, and value of owning a home wasn't just about money.

World Without Appreciation

2009-01-21T11:35:00.000-08:00

In a world where the value of a residential real estate purchase cannot include the anticipation of any appreciation, how might the condo versus TIC financial equation change?

Historically TICs were priced lower than condominiums in the City - until the real estate boom, in which case they approached some parity. (Meaning TICs were as outlandishly high priced as other kinds of residential property.) Now that we are back to earth (or at least falling toward some new and unknown terra firma) how does an investment in a TIC stack up against an investment in a condo? When I say an investment I don't mean how much money will you make (since those days are over as far as we can see), but how much money will you spend for the same priced TIC versus a condo.

Let's start with a basic calculation of mortgage costs, not including property tax, insurance, and association fees. We are going to assume the property costs $500,000 and the buyer is putting 20% ($100,000) down. We are also going to assume that our buyer is golden and can qualify for the best possible mortgage out there.

A condo buyer could finance a $400,000 mortgage at about 5.4% these days. The loan would be fixed rate with a 30 year term and 30 year amortization. (That means the mortgage payment would not change for 30 years unless the owner chose to refinance.) Monthly mortgage payments would be $2,246.12. After 30 years the condo would be paid off, at a total cost of $808,604.34 - $400,000 principle and $408,604.34 interest.

A TIC owner can get a fractional loan at about 7.25%. (That is just a ballpark. Fractional loan rates are not as widely published as traditional mortgage rates. Depending on the property the rate could actually be another quarter or half percent higher.) The 7.25% loan would be a fixed rate with a 5 year term and a 30 year amortization, meaning the owner would be required to refinance after just five years. Monthly mortgage payments would be $2,728.71. After 30 years the total cost of the loan would be $982,333.84 - $400,000 principle and $582,333.84 interest.

However, because the TIC loan only has a five year term, over the course of 30 years the TIC owner would (in theory) have had to pay closing costs five more times on his or her loan - because every five years when the loan termed out he or she would need to go back to the bank and re-apply. So let's add $15,000 more - $3,000 for each closing. (At least that's the way I understand it.)

I am thinking that in a world without appreciation all things being equal (square footage, location, condition and quality of the unit), a TIC should be priced at 25%-30% less than a condo. Or be at least 25% more spacious and fabulous.

Predictions

2008-12-30T11:55:00.000-08:00

There is a lot of talk going on at my place about the volatility in the real estate market, as we are finally seeing the effects of the recession in San Francisco. In my view, no one (real estate professionals included) knows what valuations should be right now. So I'm going to jump into the fray and offer my predictions about market trends:

- Prices on all residential properties will continue to drop through 2009 and possibly level off in late 09-early 10, when owners who must sell stop sitting it out and realtors need to make money again. These people will realize that "the bounce back" isn't going to happen anytime soon. They will come to their senses and price things to move.

- Even at reduced prices, appreciation will be negligible for the forseeable future and likely modest after that. Home buying will go back to being a long term proposition. Buyers will be lucky if their investment keeps pace with inflation over the course of the next 5-10 years.

- Liquidity (even with little or no appreciation) via resale within the next 3-5 years will also be questionable. Buyers need to be prepared to park any money they invest in a property for 5-10 years.

- Renting in the City will continue to be appealing. (Perhaps more appealing than buying.) If they have savings, many people will feel more comfortable sitting on the cash instead of investing in a property. People will want a substantial financial cushion on hand to soften the blow of a potential job loss.

- Rental prices will also see some downward pressure as people who cannot sell opt to rent. This includes larger scale developers. Several new mid- and high rise buildings in the City will become rentals instead of condos. Qualified renters will have lots of quality options. They will be able to solicit incentives and bargain for lower rents.

- Due to politics as usual, the City (primarily via the Supervisors' legislation) will continue to constrain home ownership opportunities and make being a landlord difficult, while at the same time maneuvering to suck every buck possible out of this block of taxpayers.

- Fewer people will buy TICs, due to the high mortgage rates for this type of property and falling prices on condos. If this trend is sustained, it might have some small effect on clearing up the condo lottery backlog.

- Prices on reasonably attractive 2 unit buildings in good locations will see less falling off than other types of properties, as savvy do-it-yourselfers, contractors and developers continue to seek ways to squeeze some money from this market. (2-unit buildings bypass the City lottery and can go straight to condo conversion.)

In short, the speculative buyers, the unqualified buyers, the people who think they might lose their jobs, or have mobile jobs, or want to someday get married and have kids who play in a backyard, the young and the restless, the uncertain and the daunted, will remain out of the San Francisco home ownership market. A continuing core of stable, high income earners who are committed to having a residence in San Francisco long term will slowly start buying again, very selectively. They will join the existing ownership class, which in my estimation falls primarily into these categories: 1) the non-working very wealthy 2) working homeowners who bought before 2000 3) those who flipped and traded and profited during the boom and didn't end up in over their heads and 4) those who inherited practically tax free property from their parents or grandparents.

Another Curious Missive From the City

2008-12-29T10:05:00.000-08:00

Our building just received a letter from the San Francisco Department of Public Health Environmental Health Section Code Enforcement Program. It says that based on City Ordinance 159-08 DPH can charge rental buildings an annual Healthy Housing fee related to pest control, sanitation and health standards. If this $31.00 is not paid, DPH threatens to put a lien on our property for the amount owed plus penalties.

So now we need to go through the rigamarole of signing a declaration saying our building is an all owner occupied TIC and sending it back to the DPH.

Oh well, given the municipal budget crunch I guess you can't blame them for trying.

Condo Lottery 2009

2008-12-29T09:55:00.000-08:00

TIC owners can purchase tickets for the condo lottery until 4:45 PM on Friday, January 23, 2009. There are no significant changes to the lottery procedure this year. The drawing will be held on Wednesday February 4, 2009, at 9AM in Room #400, City Hall, 1 Dr. Carlton B. Goodlett Place. If you are new to the process visit this Department of Public Works 2009 Condo Lottery Info site.

Once again our building is in Pool A, which is the somewhat more advantageous pool. We've got five tickets this year. Finger crossed. Wish us luck. We've owned this building since 2000 - it sure would be nice to condominiumize at this point.

Local Banks Should Give TIC Owners a Better Deal

2008-11-16T22:23:00.000-08:00

In earlier posts I've speculated that TICs in San Francisco will become less attractive to buyers in this less competitive real estate market. In a recent article, The Wall Street Journal reports: "In September, TICs made up just 7% of San Francisco properties sold, down from 15% a year earlier."

The article blames, in large part, the high interest rates (7.75%), short terms (3-5 years) and significant down payments (20%) required by local lenders that offer fractional TIC loans. A loan officer from Sterling Bank is quoted as saying that these loans are "more risky" because there is no secondary market. This is spite of the fact that there has never been a default by any TIC owner paying one of these residential San Francisco mortgages - or even, supposedly, a late payment.

OK, let me get a grip on this logic. We are having a national economic meltdown because people signed up for mortgages they could not pay, on properties that were insanely over valued. But in this case you have a solid class of highly qualified homebuyers bringing good business to local banks - and the lending institutions ding them. They charge premium interest rates and set it up so they can renegotiate rates and collect points and closing costs every five years.

I don't know much about banking, other than the simple fact that banks take in interest on the money they lend and pay interest to people who have given them money to hold. So in theory, if a bank is offering a 2% savings rate and charging 7.75% for a mortgage then the institution is collecting 5.75% in profit. Most people would be happy these days to be getting a steady 5.75% return on an investment.

The onerous terms offered by our local banks hurt TIC sales, re-sales, and pick the pockets of the hardworking TIC owners who must pay these high cost, bad deal mortgages every month. Instead of encouraging TIC ownership and building a book of lending business, the banks (along with our City supervisors) are making TICs increasingly untenable.

I hope when these mortgages come up for renewal at the end of their five year terms that the banks will waive closing costs, eliminate points and lower rates for individuals who have retained a high credit score, hold the same good job and have a perfect payment record. I don't mind the banks being cautious; I realize they must have lending standards - but I do have a problem with usury.

If, in five years the TIC owners who hold fractional TIC loans haven't proven our worth to our local banks, let's just forget it. Count it as, at best, a failed experiment and, at worst, a rip-off - and let everyone just buy condos.

Get Some Bail Out

2008-11-13T11:15:00.000-08:00

This does not have anything to do with TICs, but I could not resist. Experiencing a liquidity crisis? Holding some toxic assets, like your undervalued flat? Fill out this two page form for TARP money. Who knows? The way things are going the bank of yourself might net a billion or ten. Really, people, what is going on down there in DC? Everytime I sneek a peek at a news headline about this economic bailout - aka as The New Trough" - it scares me.

Year Over Year Price Per Square Foot

2008-11-10T10:22:00.000-08:00

The Chron has published this Down Around the Bay tool which allows you to enter a Bay area zip code and see the median price per square foot for 2007 versus 2008. (It pulls July through October sales for both years.)

Of course all properties should be evaluated individually, and there can be a significant block-by-block difference with regard to desirability within any one zip. For example, a residence on a tree-lined street with well-maintained historical architecture and a strong neighborhood association will out-price a flat on a seedier strip with a lot of street noise, commercial traffic and petty vice. The old rule of location, location, location still applies.

And this data doesn't address the perpetual question of how much price differential there should be between an equivalent condo and TIC. In my zip the price per square foot for 2008 reads $739. Using my own place as a yardstick, I'm almost certain I would not be able to sell my 1,000 square foot TIC for $739K in this market, even if it is a historic building on a verdant block, and my unit includes a private garage and big bay windows with top floor city lights views.

But this tool is an interesting data point and a good gage on how well your neighborhood, in general, has withstood the real estate downturn.

1776 Page

2008-11-06T23:21:00.000-08:00

The listing says "grand, full floor, three bedroom flat" - priced at $685,000. It does indeed look spacious, with bright daylight and historical detail. (Alas, no parking - green or not, most of us still need to drive to work to pay that kind of mortgage.) Whoever placed the listing claimed that this is $265K below market - I'm not sure what daydream market they are referring to. (Oh, that one, the one that just went bust.)

All four units in this upper Page building are for sale - there is also a one bedroom listed at $325,000 - a price I am guess-timating I haven't seen in a decent San Francisco neighborhood since around 2004. So while they are back-pedaling somewhat on the price I wouldn't call them bargain basement giveaways. (That would be 300 or less.)

Perhaps another sign of these economic times - the sellers have not bothered with any of the (somewhat ridiculous) staging that was all the rage not so long ago, during that delerious boom.

Same Old Supes

2008-11-06T22:51:00.000-08:00

San Franciscans showed moderate tendencies when voting on local props, but it appears they have once again returned a majority of anti-home ownership supes to City Hall. Which means business as usual when it comes to updating local law regarding the condo lottery and other pro-TIC issues. In other words, long odds to win and arduous and costly regulations for getting through the conversion process if your ticket does get selected.

Frustration

2008-11-05T17:12:00.000-08:00

The owner who lives downstairs from us is in Guam. The pipe that is broken in her kitchen prohibits us from using our kitchen sink or dishwasher because that water now floods into her unit. Because this problem is in her unit and not in a common area it is her responsibility to have it repaired. Yet aside from her initial email several days ago, and a follow-up instructing us that we cannot use our sink or dishwasher, we have heard NOTHING from her. Is she calling a plumber? Has she designated anyone else to act in her absence? Who knows? Do I care that she is working in Guam? No. Call me petty - I just want her to be a responsible owner and get her pipe fixed. If you don't want to deal with things like plumbing, electrical, roofing and who waters the plants in your yard - be a tenant.

Update: my neighbor finally did call a plumber - Heise's Plumbing - four days after the flood. (They were prompt, professional and did not rip us off.) Which made me happy I had this blog to vent on instead of sending some unhelpful flame mail to the group about not being able to use my sink. A little restraint (and patience) goes a long way when you are a TIC partner.

Get Ready To Be An Owner

2008-11-03T12:27:00.002-08:00

If you become a TIC property owner, get ready for emails like this. Make sure your group has a plan for who will have primary responsibility for dealing with these kinds of emergency maintenance situations.

I just got a call from my housesitter and she is standing in my kitchen in puddles of water. She says that the water appears to be backflowing from the sink drain. Did we have a clogged pipe somewhere on our side? It looks like something backed up somewhere along the pipe and flowed nasty water up through the sink drain in the kitchen, filled the sink and flowed over onto my floor, countertops, cabinets, etc. She says that there is all kinds of food waste in the water (anyone have rice anytime recently? There's a ton of it all over my kitchen now.) (I haven't cooked or used anything but water in my kitchen sink for over 4 months now, as I have been on the road.) I left 5 days ago, so it happened fairly recently.

While it seems that the flood had stopped, we are very concerned that this could continue if the sewer is plugged and water continues to flow into the pipe. Has anyone else had a problem? Is there someone we can call to get the kitchen drain line flushed out so that my apartment is not flooded (again)?

I would appreciate an email back or a call to the housesitter to help out with this. She's in my apartment now trying to clean up the mess.

TIC Friendly Supervisor Candidates

2008-11-01T10:19:00.000-07:00

It is no secret that the majority of presently elected San Francisco supervisors have aggressively legislated against TICs, under the misguided notion that TICs are detrimental to tenants. This in spite of the fact that the vast majority of tenants would like to someday become owners. It's simple political math - in a city where 70% of the voters are renters if you are a politician you need to come up with some galvanizing issue that appears to appease the tenant voting block. This election several supes are terming out and there is an opportunity to put more moderate legislators in City Hall. Non-partisan San Franciso organization Plan C, a supporter of pro-TIC and other urban quality-of-life legislation, favors these candidates:

District 1: Sue Lee
District 3: Joseph Alioto
District 4: Carmen Chu
District 7: Sean Elsbernd
District 9: Eva Royale
District 11: Ahsha Safai

Learn more by downloading the Plan C voter guide.

Update: District Numbers in the list above corrected after the fact. Thank you for the comments.

Paying Down the Mortgage

2008-11-01T09:28:00.001-07:00

I'm no financial genius. If I were I'd probably be living on an estate in Woodside instead of a TIC flat in San Francisco. However, one personal finance equation seems pretty clear, even to me. If the stock market is tanking, and you are paying +7% interest on a fractional loan mortgage, and you've got some money in the bank that can be put to use then it's a good time to pay down your home loan. I went over to Sterling Bank yesterday and wrote out a big check that will cut a big hunk off our principal. After ten years of "owning" a place in San Francisco I'm at the point where I am within sight of holding the title to my little flat outright. And that feels good. So sometimes, with luck and hard work and a little bit of smarts I am here to tell you that this homeownership American dream can work out - even in San Francisco. I'm also here to tell you that without TIC ownership who knows - I might still be a renter.

672 Page: Price Reduction Update

2008-10-31T09:04:00.000-07:00

The price on the 672 Page Street flat has been reduced to $599,000 -$40,000 less than the original list price. My suspicion is, in addition to the general economic slump, the glut of condos currently on the market in the mid-Market and Hayes neighborhood are putting downward pressure on TIC prices. At The Hayes, located at 55 Page, prices have also fallen on several unsold units. A one bedroom with a small study and a private terrace is listed for $523,000. The Hayes building is solid new construction, with a gorgeous shared roof deck, a doorman and a fitness center.

I wouldn't trade my TIC for a unit at The Hayes, but I bought into my building back in 2000. A TIC made a lot of sense back then for a first time buyer in a highly competitive market. At this point I've used equity to trade up to a larger unit within my building, my fractional mortgage is almost paid off and my property taxes are relatively low. Plus over the years my TIC partners have become neighbors and friends. (I was just invited to my first floor partners' wedding.) So I'd give up quite a bit, personally and financially, if I chose to move to a condo now.

However, if I were a highly qualified buyer looking to purchase a home today I would be more inclined to play hardball negotiation at the condo complex of my choice and compare that with what the TIC market might offer me. I'm not saying condos are always preferable to TICs. If you love old architecture, the building with vintage mosaic floor tile, coved ceilings and redwood framing is more likely to be a TIC. If you want the most square footage for the price a TIC is likely still the way to go. Working with TIC partners is probably no more or less aggravating than dealing with the members of a condo association. (On second thought condo associations may be more of a hassle, as they tend to involve a larger number of owners.)

Whether its a TIC or a condo or any other property, there will likely be some good deals to be had for savvy buyers in this economic climate.

672 Page

2008-10-22T21:33:00.000-07:00

In the midst of an economic downturn are there bargains to be had in San Francisco? It appears that wishful thinking still lingers among the real estate establishment. I went to look at 672 Page recently. It is a nice enough two bedroom TIC flat in a circa 1908 six unit building with tandem parking. The layout felt quasi-Edwardian Victorian. The rooms and closets were larger than a typical Victorian but all ran off a long Victorian style hall book-ended by two parlors (or in this case a parlor and kitchen). A nice enough but not particularly alluring central San Francisco space, somewhat lacking in an abundance of natural light and behooved by all the vicissitudes that likely come with maintaining a 100 year old building with five different co-owners.

Let's go back to basics and talk about how these things go. (Please note I am making some assumptions here.) An owner, perhaps a small time LLC consortium, likely purchased this building years ago when it was a six-unit rental property. (Hence the elderly and eviction-proof tenant still residing in one unit on the ground floor.) With the dawn of the TIC in the early 2000s, it became apparent to this LLC owner that there was far more profit and far less risk to be had by Ellis Acting the building. (Ellis is the state law that allows rental building owners to get out of the rental business.) Do the math. Perhaps you have six units for rent at an average of $1000 per month, which equals $6000 per month or $72,00 annually MINUS all the costs and responsibilities of building maintenance. Oh, and don't forget also subtracting your property and business taxes. And the hassle of those aging soon to be non-evictable tenants that will be living there forever at below market rates.

If, instead, you Ellis Act your property (which we presume has no mortgage debt, since you perhaps purchased it in 1982 for $50,000) and sell all the units AND hold the mortgages yourself, you can get 2.5 TIMES THE AMOUNT OF THAT RENT WHILE REDUCING YOUR COSTS AND PRACTICALLY ELIMINATING YOUR RISK. Even if you hold a very conservative $400,000 note at 6.5% interest for each unit you will be collecting about $2,528.27 a month per unit or OVER $15,000 a month. And if a pipe breaks, or the roof needs repair, it is no longer your problem.

Don't get me wrong. I'm a TIC owner and I've got nothing against TICs. I just think that pricing a unit like this at $639,000 in this market is a bit wacked. When the real estate agent starts to tell you that it is a gift to be able to get financing from the owner ON HIS TERMS (6.5% adjustable bi-annually linked to COFI) because banks won't finance borrowers these days... alarm bells should be going off in your happy, house-hunting cortex. If you like the place well enough you should laugh and say "Call me if you don't get any offers and really want to negotiate." I'd say you should start at $500K and you, not the lender, should dictate the terms of the loan. Perhaps 6.5% fixed? After all, YOU are the one taking on all the risk. And, as with any 100 year old building, make sure you read those disclosures. And take a walk past the building after 8pm. There is some weird conclave of hangers about doing things I couldn't quite figure out next door. In short, if you are a credit worthy buyer ready to put your cash on the table, it's a buyer's market - don't be intimidated, play it that way.

Am I Bored?

2008-07-16T18:24:00.000-07:00

Individual loans for TICs are now widely available. Chris Daly wants to have 2-unit TIC buildings enter the condo lottery. (An idea that was mercifully killed by, among others, Supe Alioto-Pier.) Appreciation has slowed to a crawl. The newly built condo complex down the street features flats smaller than mine for over 5xs what's left to pay down on my (overpriced) TIC mortgage. Ho hum. Am I bored - with real estate?

It's A Dryer Vent, People, Lighten Up

2008-07-16T18:12:00.000-07:00

Let me post this (an actual excerpt from an email sent between partners in our building) as an example of how NOT to communicate.

Your response to my original e-mail was inflammatory and most of your interactions with me and others in the building are confrontational. In fact, I was surprised to get such a nasty e-mail from you...Your duplicity no longer astonishes me and I would appreciate it if you avoid me whenever possible. You are one of the most negative people I have ever encountered... I resent the insinuation that I don't clean-up after my dryer because I do. Quit lying to save face. I also clean the stairs frequently from your level on down to the garbage area... Everyone in the building has seen both of our apartments, so I think there is no question as to who the clean one is. I do not appreciate your lying and nastiness.

What can I say? Put six partners together for nearly ten years and eventually someone is going to have a blowup.

That said, the benefit of having six partners is that in the event two of them begin engaging in this kind of flame throwing the other four are around to provide some extinguishing influence.

And it serves to remind us all - take a breath before you hit send.

Communiques From the City

2008-04-30T10:16:00.000-07:00

When you become a TIC homeowner in the City you will undoubtedly, from time to time, receive a mysterious communique from a local government agency. This may arrive in the form of a letter or perhaps appear as an official notice posted on your doorway. Often these interactions result in the TIC having to pay someone or other to get something or other done. Over the past seven years we have had suprise fire safety inspections, unexpected visits from a sidewalk inspector, disputes about which side of the curb certain dysfunctional sewer pipes lie and several scares from the tax collector's office.

So it was with some trepidation that I opened a letter yesterday from the tax collector. It began with "Your request for exemption of the rent stabilization and arbitration fee is denied or adjusted for the reason/s checked below." To the best of my knowledge I have never had any contact with the City regarding a rent stabilization fee. There were some additional boxes checked, a handwritten note reassuring me that my "bill is correct" and a suggestion that I phone the Assessor's Office.

From experience I know the first thing one needs to do in such a situation is contact all the building partners. Because sometimes the City sends out a duplicate letter to all parties on title, meaning all six of us will be scrambling for the phone at the same time trying to get this same issue resolved. Then again, sometimes the City sends out just a single letter to one apparently randomly selected owner on the title, about a matter that concerns the group. In which case that sole party thinks everyone else has gotten the same message and of course someone else must be handling it. So the first thing to do is check in.

In this case I discovered that I was the sole recipient of the unfathomable letter. Lesson two about dealing with the City is don't ask why - just do. If they say you need to call about the denial for an exemption you never requested pick up the phone and dial.

Because lesson three when dealing with the City is that once you get a person on the phone or arrive at an office or otherwise have contact with an actual City employee person they are usually quite helpful. For example, in this case the woman who answered the phone at the tax collector's office told me not to worry about 90% of the content of the letter I had received. She concluded by advising "I'll mail you the form you need for your homeowner's exemption."

The Homeowner's Exemption is something every residential property owner in California should know about. Here is a good article in the Chron offering a summary. Basically the exemption takes some money off the value of your primary residence, which reduces your property tax bill.

So anyway, somehow the letter I received about my denial for exemption of rent stabilization was actually a reminder that our building (for reasons we may never want or need to know) must re-file our claim for our homeowner's exemption. Perhaps this had something to do with the handwritten note on the bottom of the letter referring to "adjusting our computer system." In any case, thank you Matilda, or whoever it was who picked up the phone at the customer service desk, for helping me read the tea leaves.

TIC Group vs. Condo Association

2008-03-16T20:03:00.000-07:00

There is an old adage - "don't think it's paradise across the road." Meaning it may look like your neighbor has got it made but in all probability he or she probably doesn't. Same thing with TIC owners who wish for condo status, believing this would spare them from the close ties and collaborative decision making that owning a TIC requires. Whenever this thought crosses your mind just remember two words - condo association. These associations are, in effect, identical to TIC groups, except they are usually comprised of more people, which of course makes the likelihood of getting anything done even more difficult.

"Lottery Hell" In The Chron

2008-03-16T19:54:00.000-07:00

The Chronicle featured an article today titled "Tenancy-in-Common Lottery Hell." It's great to see the local news media take an interest in TICs. Also interesting are the reader comments, such as "Renting should never be a lifetime contract." Now let's see if we can take that to the ballot box.

Fractional Loan Rates Drop

2008-02-21T21:13:00.000-08:00

I received a cryptic call from Sterling Bank a couple days ago, saying that they were dropping their TIC loan rates to 6.75%. My TIC group refinanced with Sterling last spring, shifting from a group loan to individual fractionals at a rather exorbitant 7+% loan rate. At the time, as much as we beat on the loan officer they would not budge on the rate. Our TIC group almost came to blows over whether we should move to the fractionals, given the financial penalties of doing a refinance and the high rate and the short five year term - but in the end we did it.

I returned the call out of curiousity to find that a few months after closing on last spring's refi, the bank is calling to offer me the privilege of ponying up another several thousand dollars to REFINANCE AGAIN. I did not want to wear down the poor novice sales guy they put up to dialing for these dollars, but I had to ask him point blank - was he crazy? Yes, let me refinance my mortgage with you on an annual basis and pay all those ludicrous points and fees just for FUN! That makes perfect financial sense!

And no, they don't want to discuss cutting our rate. This is what I call - bad business. If you are cutting rates after you just sold me a higher priced loan within the last 12 months then don't call me to rub my face in it. As I said to Mr. Salesman - for those of us who recently opted for a TIC fractional loan (and that is most of us who have TIC fractional loans) this is not good news. Take that message to your front office.

Of course if you are buying a TIC lower fractional loan rates are something to give a bit of a cheer about.

433 Carl

2008-02-09T20:54:00.000-08:00

Awesome neighborhood, great light, historic charm, in-unit laundry hookups, storage, radiant heat, new electrical, plumbing and roof - what's not to like about this Cole Valley TIC at 433 Carl? Leased parking. (There are six garages in the photo - what gives?) Listed at $479,000.

Should I Buy a TIC?

2008-02-09T20:29:00.000-08:00

My hairdresser is a darling 30-something gay man. Today while cutting my hair he asked, "Should I buy a TIC?" I thought about it. Everything (with the exception of the condo lottery) has gone right for me. My building is a historic gem. Our neighborhood has completely turned around and is now a desirable place to live. My building partners have been responsible, collaborative, hard-working people. The real estate boom let me earn $150,000 tax free and flip that into a larger unit when my neighbor decided to sell.

But it's not 2000 anymore. The real estate surge is over. Condo conversions have effectively been halted. TIC fractional loan terms are burdensome.

On the other hand rents are sky high and you don't want to invest all the money you may have saved in this stock market.

So on balance I'd say the old rules apply. If you are going to be living in the same town for at least five years, if you have a steady and predictable income and you can easily afford a 20% down payment, and if you are paying as much in rent as your mortgage would cost - go ahead. Just be careful what you buy. Location, location, location. Negotiate, negotiate, negotiate. It's a buyer's market. Try to imagine not just yourself living in the place, but yourself five years from now trying to sell it.

TIC Rally

2008-02-09T20:18:00.000-08:00

Thanks to the Chron for covering the TIC rally at City Hall last Wednesday. "Payback is a Bitch" Supe Aaron Peskin is quoted defending the City's lottery policy which, if anything, gets more onerous every year. Only a few days earlier the Chron featured an article about Peskin's outlandish, harassing home phone calls to City executives working for the Port. He threatened to cut off their funding and get rid of their jobs if they didn't go along with his building schemes. To Mr. Peskin I say there is a group in this City that is going to be very happy when your funding is cut off and that (thank to term limits) you lose your job.

Condo Conversion Seminar February 12

2008-02-09T20:07:00.000-08:00

So what do you win if you win the lottery? Years of hassling with the City government bureaucracy as you attempt to navigate the byzantine rules for condo conversion. After successfully managing a FSBO (for sale by owner) I am an advocate for DIY (do it yourself) whenever possible. However, I wouldn't dream of attempting a condo conversion without help.

Law firm G3MH is conducting its annual post-lottery workshop on February 12 at 6:30pm in Building A, Fort Mason Center. G3MH has created what they call a DIY program to assist TIC owners through the conversion process. The workshop provides tailored forms, expert guidance and tips for avoiding common pitfalls.

The workshop will also highlight the latest news in TIC fractional mortgage loans.

Condo Lottery Loser

2008-02-09T20:02:00.000-08:00

We lost the condo lottery AGAIN. Looking back, I realize our fatal error occurred during the first three years of our occupancy. Because of turn over in our building during those early years we ended up having to wait until post-purchase year four to enter the lottery. Being held back that one year has, statistically, pretty much put us perpetually in the drawing class with ever worsening odds.

Anyway, the good news is that instead of paying who knows what to get the condo conversion process rolling we can put our house money this year toward repairing that rotting back staircase.

510 Page Street

2008-02-03T11:31:00.000-08:00

Page is a lovely tree-lined street with easy access to inter-City public trans and the 101 Silicon Valley commuter corridor. 510 Page is a six-unit TIC; although built in 1913 it appears to have had most of its historic charm remodelled out. And there is unfortunately only one garage space. (My six-unit building is the same. Is this a legacy from when the building's residents only needed to stable a few horses instead of maintain space for 6+ cars?) The other caveat is - Webster Street. In an overly liberal-on-crime City where the police can at best practice containment Webster is unfortunately the block where a lot of local petty hoods end up getting pushed. So you might see some thugs in black hoodies hanging out in front of the local groceries in the Webster corridor. In any case, a two bedroom flat for $500,000, especially one with a jacuzzi tub and some outdoor space, in this part of the City is worth a look.

Partners and Friends

2008-02-03T11:17:00.000-08:00

Two of my downstairs neighbors came up to my place for a glass of wine on Friday night. I've known them for nearly seven years now. Together we've gone through the hassle of dealing with exploding water heaters, roof leaks, disintegrating back stairs and many of the other vicissitudes that come with being first time homeowners maintaining a 100 year old building. We've shared the trials of the dotcom boom and bust, suffered the shock of 911 and watched each other go from being single to getting partnered up. We've cheered each other on through job interviews, shared conspiratorial house gossip, watched each other's pets during our vacations. Now we are heading for 50 and sharing ideas about where we might like to spend our retirement. (It's probably not going to be San Francisco.) This is one of the priceless things that can come with being part of a TIC - knowing, and liking, and even over time coming to love - your neighbors.

TIC Spotless Loan Records

2008-02-03T11:03:00.000-08:00

This article in the Chron highights the success of the $500 million in fractionalized loans that local banks have delivered over the past couple years:

With defaults rising like the tide and cresting in foreclosures, the blame has often focused on lenders who took chances with "creative" loan products. But there's one kind of home loan that is reporting a virtually perfect record. No defaults, no foreclosures and, according to some experts, not so much as a late payment.
Ironically, this exceptional record is not associated with some Fannie Mae-underwritten conforming loan for single-family homes, but a newfangled lending product that was thought to be so risky and so innovative that mainstream banks still won't touch it. Such is the ironic success of the Tenancy in Common fractionalized loan..."

Why are these TIC loans such a booming success? Comes down to three simple principles, the same three things that used to be the foundation of all mortgage lending: TIC owners occupy their properties, TIC owners put a minimum of 20% cash down toward a home purchase, TIC owners go through a rigorous credit check before being approved for the loans.

So the question remains - why are TIC loanholders still being penalized with punitive interest rates?

Filling a Market Niche

2008-01-21T15:20:00.000-08:00

There is a posting on Craig's List touting the services of a "TIC Finance Manager."

In our 6-unit building, we decided ten years ago it was too expensive to pay a Management Company to handle our common operational details, which include paying City property taxes, property insurance bills, common area utility bills and (before we fractionally refinanced) the mortgage. Idealistically, in the early years we decided to split up the duties. The property tax bill was sent to one owner, PGE bill to another, and so on. We had a common bank account with six, yep six, names on it.

Needless to say, this was folly. No one owner knew what any other was (or was not) doing. We ended up paying a penalty on our property taxes because the bill was paid late. The bank almost called our loan because our insurance nearly went into default. Checks were lost, payments were in disarray, no one was keeping tabs on what we spent and what we had remaining in reserve. This wasn't the result of malice. It was the consequence of inexperience and the supreme occupational demands that one takes on (sometimes to the exclusion of almost all else) when one faces the financial challenges of owning, renovating and maintaining a home for the first time.

At some point one owner in our building nominated her roommate (not an owner) as a candidate for taking over the job of house finance manager - for a monthly fee, of course. Wisely the rest of the group nixed the idea of handing our bank account over to an outsider. (We were naive but not that naive.) In any case, the roommate moved out three months later, validating our belief that a renter will never have the long-term commitment that an owner does to participating in a TIC.

Thankfully one of our owners decided to quit his job and go back to school. This left him with the extra time necessary to manage the house finances, for which the group paid a nominal fee - a fraction of what a management company or accountant would cost. We put all the bills in this owner's name, and took four of the owners off our bank account, leaving the new house manager and one other owner, who would only step in and write checks in an emergency if our house manager could not. Since then, we have not had any issues with our house finances. (Other than wishing we had more money, of course.)

But every TIC might not have a partner with copious free time and financial organizational skills. Most of us are working hard and managing family obligations and so on. So while I can't endorse any particular service provider, it is interesting to note that the service category "TIC Finance Manager" has appeared on the local radar. If such a person has the right qualifications and is charging a reasonable monthly fee ($100 or less) for the few hours of work per month required, it could be a good deal for some.

Plan C TIC Rally February 6

2008-01-19T14:28:00.000-08:00

Plan C and the SF TIC Coalition are organizing a rally on February 6, the day tickets are being pulled in the 2008 Condo Conversion lottery. I encourage all TIC owners to attend and make some noise at City Hall. Here's an excerpt from the announcement.

Please join Plan C and the SF TIC coalition for a rally to support condominium conversion reform! On February 6th the City will hold its annual condominium conversion lottery. This year, we’re using this once-a-year opportunity to show our dissatisfaction with an outdated process that unfairly penalizes first time homeowners!

We'll meet on the City Hall steps starting at 8:15 a.m. on Wednesday, February 6. We'll have Peet's coffee for you - and petitions to reform the lottery process. Just before 9 a.m., we'll walk together to Room 400 where the lottery is held. On the way, we'll also walk to the Board of Supervisors’ offices to leave petitions asking for condo conversion reform.

We need to let City officials know how many of you are waiting patiently through a process that takes too long to complete...With only 200 "winning" units each year, the odds of winning have gotten steadily worse.

Plan C has backed condo conversion reform for a long time, but these efforts have met with failure at City Hall. Why? -- because San Francisco's TIC community has not organized to fight for fair treatment at City Hall. February 6 is an opportunity for you to have your voice heard! Join us at 8:15 on February 6 at City Hall.

Condo Envy

2008-01-12T22:41:00.000-08:00

As a TIC owner, do I sometimes feel condo envy? What if I could get a mortgage at a competitive rate instead of being limited to an expensive fractional? What if I lived in a bigger, more anonymous, new building that didn't require haggling over all the maintenance details? Yes, as I've seen The Hayes go up down the block I've been feeling the envy. Silly, perhaps, considering that the square footage at the Hayes is about the same as what I have now at double the price. And particularly silly in light of the fact that all of my envy is based on a tricked out marketing site and no actual show units. The place still looks like shell from the street. When they say early 2008 move-ins does that include running water? Or do you get a hipster squat experience as part of the bargain until they hook up the utilities?.

That's the thing about envy - usually it is based on some delusional, romantic notion. Perhaps the people buying into The Hayes will one day walk past my building and feel a pang of regret that they didn't buy into a historic Edwardian.

75 Lily Street

2008-01-12T22:25:00.000-08:00

Looks like a nice renovation - new plumbing, electrical, roof, double pane windows, radiant heating, in-unit washer and dryer - the works. No parking, though, so you have to lease parking or Zipcar it. And from the photos it looks like a shower only in the bath. No tub?

7 Year Itch

2008-01-12T22:09:00.000-08:00

I have been a partner in the same TIC since 2000. They say in marriage you hit a 7 year itch. Well I think I'm hitting the 7 year itch point. We have an outdoor staircase in our 100 year old building that needs to be replaced. It is a second means of egress for three of the units in our building. Three other units, on the other side of the building, have a fire escape ladder. Neither of these things conforms with current city code. The fire escape is in good working order; the wooden staircase is a hazard. It seems to me, and most of the partners in the TIC, that repairing the staircase is a no brainer. Why is there always one dissenter who makes things difficult for everyone?

Yes, we have someone in our building bombarding us all with emails that advocate for the removal of the staircase, which would leave three units with back doors to nowhere and no doubt get us in hot water with the City fire safety inspector.

This is a level of ridiculousness that after seven years of negotiating every detail of building management I find hard to take.

Happy New Year

2007-12-26T22:55:00.000-08:00

Apologies for the blogging hiatus. I have a new job which is swallowing up a lot of my time. I should be posting again regularly in the New Year. I went over to the Bureau of Street Use and Landmapping on Monday morning and purchased the four condo lottery tickets for our building. I thought perhaps if I bought our tickets on Christmas Eve Santa would smile upon us. We've been in the lottery since 2003 - so give us a break Kris Kringle. In terms of the process nothing much has changed this year regarding the condo lottery except the entry fee has been raised from $150 to $250. The City is always looking for a way to ding homeowners, I guess.

A Classic TIC

2007-10-13T09:47:00.000-07:00

With all the innovations in TICs - larger groups of partners, tenant/owner splits, old owners selling off new TIC units one by one - I've come to think of the classic TIC as a renovated older building of 6 units or less, all to be owner-occupied, priced reasonably, in an up-and-coming neighborhood where increasing homeownership can make a difference in the quality of life. Located in Hayes Valley, 75 Lily Street has all that and more - gourmet kitchens, radiant heating, double-paned windows, new electrical, plumbing & roof. Parking is leased.

TIC Cottages

2007-10-13T09:13:00.000-07:00

When I first moved to San Francisco ten years ago I had visions of purchasing a quaint little cottage where I would cultivate a garden while my beloved cat stretched himself in the Northern California sun. So whenever I see a listing for a TIC cottage my heartstrings feel a tug. This week I've spotted a couple.

In realtor's parlance charming means small, but this Nob Hill listing does look darling. Plus, on the practical side it has new plumbing, new electrical and a new roof. What an adorable pied a terre or center city hideaway. This cottage is part of a larger 14-unit property so it will likely never go condo. Parking is leased.

If charming is small, pint-sized must equal teeny tiny. This "compact" Alamo Square duplex looks like a remodeled garage, and from the photos the refrigerator appears to be in the living room. But it is secluded, has views and comes with deeded parking. How cute.

Sharing the Burden

2007-09-26T21:46:00.000-07:00

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

2007-09-25T18:24:00.000-07:00

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

2007-09-25T18:01:00.000-07:00

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

2007-09-22T10:46:00.000-07:00

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

2007-09-22T10:10:00.000-07:00

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

2007-09-22T10:02:00.000-07:00

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

2007-09-20T23:01:00.000-07:00

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

2007-09-16T21:37:00.000-07:00

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

2007-09-16T21:18:00.001-07:00

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

2007-09-16T21:18:00.000-07:00

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.

On Vacation

2007-08-23T09:31:00.000-07:00

Sorry for the sparse postings of late... I am back east, hitting the beach with friends and family until the end of August. My only real estate comment is that tiny seaside shacks on this little island off the coast of New Jersey are listing for close to $1 million, making the prices in San Francisco seem not so very bad.

Calculating the Obvious

2007-08-05T19:42:00.000-07:00

When you look at those open house handouts that detail the monthly cost of TIC ownership, think again. They usually only show the cost of your mortgage payment. To get a true idea of what your monthly carrying costs will be, get numbers for everything on this list:

- mortgage payment
- property taxes
- building insurance
- common area dues
- parking fees

While the mortgage interest deduction is a significant benefit, I don't usually count that when evaluating my monthly morgage costs. My calculations are simply what is my monthly cash intake versus the monthly bills I will be required to pay. The costs beyond your mortgage payment can easily add up to a third more outlay.

Other costs to consider:

- "walls in" insurance for the personal property in your unit
- a rainy day fund for special assessments

Regarding the latter, if unexpected capital improvements are needed on your building then all owners can be charged over and above their monthly dues. For example, my building has a decorative plaster facade that has its own roof. Four years into owning the building the plaster started falling off and an inspection revealed that this little roof had completely degraded. (None of our pre-purchase inspections had made note of this.) This roof cost our group about $25,000 to replace, because of the difficulty of access and the fragility of the plaster. I had to write a check for about $4,000 that month - my 15% share of the total bill.

Jail Roger

2007-08-05T18:47:00.000-07:00

I am not one to bash realtors. Reputable realtors can add value to a transaction. They help steer first time buyers and sellers through a complex process, and spare affluent clients a lot of leg work. However, when I see that a realtor has a history of mistreating people in his former business, I think buyers and sellers should be made aware of that individual's record.

Roger Mwamba, who, with his wife Maureen Kenney, constitutes Kenney Real Estate, was the former owner of Body Tonic Gym. Several news articles and the Yahoo Group Jail Roger chronicle Mwamba's dubious practices at the gym, including a aggressive push to sign up new members and rake in an alleged $45,000, even while planning to declare bankruptcy and shut down the business. In short, former employees and members say he hired sales people (whom he did not pay) to sell memberships to clients (which he did not honor), then simply put a padlock on the door and drove away in his Porsche staight into bankruptcy protection.

Would you work with a realtor who, in his former business, left employees unpaid, billed clients for services they were never going to receive and ended up under investigation by the San Francisco District Attorney's office? I wouldn't.

Kenney Real Estate specializes in TICs. My opinion? Avoid them.

Bargain TICs

2007-08-05T17:49:00.000-07:00

Even though there are now TICs selling for close to or above the $1 million mark, my contention is that the original purpose of this form of group ownership was to provide San Franciscans with an affordable path to buying a home. Of course a reasonable price in the San Francisco real estate market is miles above what would constitute a deal in other locales. However, I will set a completely unscientific metric, based on what I paid for a one bedroom TIC (without parking) back in 2000 - $250,000. According to the U.S. Bureau of Labor Statistics, due to inflation that equals $302,485.48 in 2007 buying power. Here are a few interesting properties in that range.

If you are a fan of 60s style, 198 Dolores (pictured above) has clean, modern lines. The unit is filled with light and the floorplan appears emimently workable. Plus, nirvana,, the price of $339,000 includes one car parking in an independent garage. This looks like a very groovy San Francisco starter home for a professional single.

This Cow Hollow studio near the Presidio would make a lovely little pied-à-terre. It includes a private deck. And you can't beat the location, in terms of retaining your value. There are several units listed on the MLS at this location, priced in the $260s. That means plenty of room to bargain. Alas, these "jewel boxes" do not include parking.

2162 Pine is another very cute studio, which would require some very creative thinking about how to best configure a sleeping/living/eating space. Perhaps re-purpose the walk-in closet? Listed at $299,000.

Feeling Fractional

2007-07-21T19:06:00.000-07:00

Did I mention that our fractional loan has closed? After several months of meetings and paperwork and back and forth on the pros and cons our group completed the fractional refi. Hallelujah. Now I feel like I actually own the place, and could sell it if I had to, and get all my money out. (Since I bought into this building in 2000, for the past seven years I have been living with an unusually complicated financing arrangement, where part of our building was financed by the former owner, and part was a group loan through a bank, with all kinds of fine print about how the payments moved up and down in relation to Treasury notes and each other.) It was definitely time to modernize the finances. Double hallelujah.

Paris Pied-à-Terre

2007-07-21T18:37:00.000-07:00

I recently went to see Sicko, documentary filmmakrer Michael Moore's new movie about the healthcare industry. To sum it up, people in London, Paris and Havana have universal access to quality healthcare, without the worries about pre-qualifying conditions, premium payments, denial of coverage and potentially bankrupting medical bills that we face in the USA.

As depicted in the film, life in Paris looked particulary civilized, with government-funded nannies folding baby clothes for new Moms, and a post-operative cancer patient sunning his way to health on the Cote d'Azur. Which got me thinking... Maybe it's time to invest in a little place in Paris, just in case my American HMO decides it's in their best interest to send me six feet under.

Andy Sirkin, the local real estate attorney who catalyzed the rise of TICs in San Francisco, features a link on his website to Paris Pied-à-Terre, which offers 1/12 ownership of gracious Parisian flats. Yes, it's a time share concept, which I have always been vaguely suspicious of, especially when I do the math. If they are charging $92,000 per 1/12, that makes a tidy profit for the developers. Far more than if the property were bought and sold outright to and from individual owners.

Let's say, for kicks, I was able to break my TIC into one month shares of $100,000 US and sell all of them. I'd make $1.2 million net instead of the $650,000 it might bring selling to one party. With that kind of profit, I could easily own outright a one bedroom pad here in SF, and a little studio in Paris, plus maybe even a cheap cabana on the Sea of Cortez in Baja, Mexico.

But still, the idea of a more evolved form of fractional ownership that goes beyond the free flight to Vegas timeshare presentation is intriguing. It's a concept that could take off, as boomers retire and have the freedom and means to explore other parts of the world, as well as the desire to claim all the potential fringe benefits that might go along with a foreign address.

238-240 Linden Street

2007-07-15T17:45:00.000-07:00

This two-unit TIC has a lot to recommend it - location, tasteful finishes and a spacious feeling. Built in 1907, the building been re-plumbed and re-wired, and the foundation upgraded. As a two unit building, you can bypass the condo lottery and proceed with conversion after one year of owner occupancy. In my view, this all makes it a property worth considering.

The lower unit is a duplex, with a master bedroom suite in the basement and kitchen, living, two additional bedrooms, another bath and sun room with laundry hookups at the street. I liked the open plan on the main floor, and the quality appliances in the kitchen, including a Viking range and a built-in wine chiller. Out-of-town guests could be put up very comfortably on this level, still leaving you an extra room for a home office. The master suite in the basement is tastefully done, and includes a sitting room, large closet and large bath. They have done a good job of taking advantage of the light well between buildings to let some natural sunshine in. The door to the basement storage areas for both units is off the master bedroom sitting room - a bit awkward. But if you are going to live in an old building there are going to be quirks.

The top floor is more light-filled, and although there are two bedrooms and two baths the layout seems a bit jiggy and cramped. A wall hookup for a flat panel TV faces the kitchen counter, making me think I'd have to get one of those fancy mod Euro couches on wheels so I could roll it out away from the wall every time I wanted to watch a movie straight on instead of at a 90 degree angle. The master bedroom opens with double doors out to the main living area. If your partner had a couple friends over (sipping wine from that chiller, no doubt) and you wanted to hit the hay early you would feel more or less on top of each other. All in all, I had the feeling that too many doors were crowding the walls of the main area, making the place feel neither open modern nor beaux arts historic. Something had gotten lost in the translation from then to now.

Which is probably why the realtor pounced on me to find out if I had any interest in the upper unit. Apparently there are several buyers seriously considering the duplex, but not so many expressing enthusiasm for the upper unit. I think part of the problem is that if sold as a TIC they have split the building 55% lower/45% upper, making the price for the much larger duplex only $55,000 more tham the smaller, more awkward upper unit. Normally I would say the upper unit is preferable, but in this case I think the split should have been closer to 60/40. The end result being that if you are game you could put in a bid below asking for the top unit, and use your creativity to arrange things in a way that would mask some of the upper unit's flaws.

Oh, one more comment to all those hoping to sell this (or any other) property. When you do your renovations, put in a decent bathtub. In contrast to the luxury kitchens there was not one decent tub in any of the four bathrooms. What good is the wine chiller if I can't take a deep soak while sipping my zinfandel?

Condo versus TIC

2007-06-24T21:28:00.000-07:00

When I see large, historic renovation condo projects like 74 New Montgomery, with (admittedly New York tiny) studios list priced at $379,000, I have to wonder whether the TIC market has gotten a bit ahead of itself.

Prices being the same, would I opt for a condo with less square footage versus a roomier TIC? I suppose it depends upon layout and location.

Financing is a factor. Right now over a five year span buying a TIC is going to cost about $10,000-$12,000 more in mortage payments, on average $200 more per month. Longer term buyers will likely need to refinance their TIC mortages more frequently than condo owners, because no 15, or 30, or even 7 or 10 year fixed rate mortgages are available for TICs. That refi in year five means you will rack up some significant bank and title company costs down the road. Figure another 2% of the money you are borrowing, or $10,000 on a $500,000 mortgage.

But of course there is the sanity factor. Some individuals (and couples) live just fine in "ship's quarters." Others don't. $200 per month is a fair price to pay for daily sanity.

1501 20th Street

2007-06-24T19:53:00.000-07:00

Here is an interesting Potrero TIC. First, kudos to the marketeers at Zephyr for the gorgeous photography. The artful, light-filled compositions make me imagine a leisurely life of late morning awakenings and sun-filled afternoons spent surveying the rooftops that stretch down to the Bay. And the adjectives - rare, handsome, incredible, vibrant - are most imaginative.

I am curious about why there are "three garages, one vacant." Does that mean two of the garages are rented (or owned) by individuals who are not new buyers of this TIC? Also, the ad seems to suggest the "one vacant garage" will sell only with the cottage. (Ah, the word cottage summons endearing images of charming gardens cultivated by either eccentric but friendly pensioneers or a young, fantastically good-looking young person recovering from a recent heartbreak...) But back to the subject at hand, reading between the lines, I am presuming my top floor view unit "available for $650,000" requires street parking.

Back down to the ground, is that a restaurant of some sort on the bottom floor? How might one feel about living in a sizable, comparatively well-priced unit, above a restaurant? (Assuming, of course, that the tenants scheduled to depart on October 31 do indeed vacate the place.) In this case the words "ventilation unit" and "exterminator" spring suddenly into my thoughts... not to mention "owner move-in eviction."

And then I take a look at Mapquest. Why is it in San Francisco wherever you see the label "Recreation Center" the word "projects" almost certainly closely follows in one's thoughts? Still the rec center down the street from this property gets (mostly) favorable reviews on Yelp.com. Says one reviewer - "the center and the grounds are there to serve the housing projects to the south and east, with plenty of afternoon and evening sports programs, whilst from the north and west, the gentrified world of audi, bmw and jetta owners populate the park for the chance to exercise their prized, well-fed and groomed dogs..."

Oh, I guess that adds a well-brushed fido to my 1501 20th Street fantasy. And a bit of brave-hearted, gentrifying T-line pioneer spirit. Why do I suddenly think of the phrase "hard bargain?"

Closing Statement Review

2007-06-14T05:53:00.000-07:00

The bottom line is this: the buyer is the one who has the most incentive to push for reduced closing costs.

The bank or broker certainly doesn't.

And your realtor will typically not be of much assistance. At that point the deal is done and his or her commission has been secured. Also, the realtor is motivated to maintain good relationships with brokers and banks for future deals. In fact, it is probably a good idea to look at any loan and title vendors your broker might be suggesting with an especially critical eye, as the broker may be putting his or her own interests regarding financing arrangements ahead of yours once an offer has been accepted.

This is a bit of a tricky game, because the bank or broker knows you will probably not walk away from closing on a house you want to purchase (or refi) just because they sneak in $500 of extra fees. With TICs, they know your options for securing financing elsewhere are limited, and in some cases, TIC groups are under pressure to refinance because their loans are coming due.

Keep a level head throughout the process. Practice the art of detachment. The bank or broker is counting on you to be emotionally involved in the concept of "home", not acting like someone who eyes the numbers as a dealmaker. Get your good faith estimate in advance and go through it line by line. Learn what each item means. Cross out their numbers and put in numbers you feel are reasonable and fair. Becoming familiar with closing statement line items in this way gives you a strategy for challenging the costs.

Here is an outline of the items that were on my recent refi closing estimate:

Loan origination Fee (Points)
Underwriting Fee
Bank Fee
Tax Service
Flood Cert
Wire Fee
Attorney Review
Appraisal Fee
Escrow Fees
Additional Charges
Overnight Service
Notary Fees
Title Insurance
Environmental Protection Lien
Recording Fees

After receiving the first estimate I had a talk with the loan officer. He agreed to eliminate the Bank Fee (-$300) and Additional Charges (-$75) and reduced the Underwriting Fee (-$100), Appraisal Fee (-$75), Title Insurance (-$300) and Escrow Fee (-$100). So overall I saved almost $1000. Small change in the context of a home mortgage, but why pay anything that you don't have to.

Also, if at all possible, I recommend paying the closing costs out of pocket. In other words, write a check for your closing costs. The bank will want you to roll them up into the mortgage, because they hope to collect interest on those fees for a good many years. Paying a few thousand dollars now may hurt a little bit, but in the long run you will be saving a lot.

June 13 Plan C Rally

2007-06-12T21:31:00.000-07:00

I will be joing Plan C on June 13 at noon on the City Hall steps. We will be protesting Chris Daly's quality of life budget cuts.

Daly, who lives in an expensive condominium, fashions himself as a hero to the downtrodden. He is no friend to TIC owners and his latest maneuver is a typical grandstanding power grab.

Here are the details from the Plan C newsletter:

"Four days after the Mayor submitted a balanced budget, Supervisor Daly introduced a motion to cut the following programs, totaling $37 Million:

$ 2,521,190 – the entire street tree budget (including the entire contract with Friends of the Urban Forest)
$ 700,000 for the Community Justice Center, modeled after best practices in other cities for enforcing quality of life laws
$ 3,000,000 for Salaries for one new Police Academy class
$ 2,100,000 for the Community Corridor street cleaning and commercial district improvement program
$ 606,000 for a Small Business Assistance Center
$ 375,000 in funding to support Community Benefit Districts (CBDs) – one of the best recent innovations to keep our neighborhoods clean and safe
$ 2,884,192 for sidewalk repairs
$ 6,353,435 for street resurfacing
$ 1,680,000 – the city's entire pothole repair budget for the coming year
$ 1,100,000 for new Park Patrol officers in Golden Gate Park to provide security and prevent quality of life infractions
$ 713,183 for the 311 Call Center
$ 500,000 in reserves for the city's massive retiree benefit liability
$7,500,000 In Financial Reserves
$5,000,000 to rebuild Public Housing

Supervisor Daly proposes to use the money cut from these programs for his housing proposal, as well as to fund other programs at the Department of Public Health including restoring funding for federal cuts to funding for AIDS programs.

Clearly, affordable housing and AIDS programs are important, and there are legitimate policy discussions the whole city should have about the tradeoffs in the budget. But Supervisor Daly's slash-and-burn approach will decimate basic city services, and do so with no analysis by the Board of Supervisors Budget Analyst, no opportunity for substantive debate and no public participation. Moreover, if Supervisor Daly's motion is allowed to proceed, it will set a terrible precedent for making major budget decisions based on short term political vendettas instead of thoughtful policy discussions."

There's No Excuse for Being Mean

2007-06-12T20:23:00.000-07:00

Even after being in a TIC for seven years I tend to take a Pollyana view toward folks working together. During recent fractional loan debates emotions in our group sometimes ran high but in general everyone focused on issues and tried to help each other out.

Until Saturday. On Saturday we had the final powow. All six partners came to the meeting after crunching numbers and meditating on our personal finances. Five people decided to vote yay although the loan pretty much stinks. (Most of us could walk into any bank on earth and get a 30 year fixed rate of less than 6% and here we were signing up for a 5/1 ARM at 7.25%.) However, owner number 6 remained disgruntled. She began silently seething, abstained from the vote on the loan and continued simmering until halfway through our discussions about TIC agreement revisions she exploded, hurling cutting comments at another TIC member.

"It's all about you, isn't it?" was her main crescendo. "This is all about you," she repeated over and over again, snarling at the other partner, accusing the partner of orchestrating "this whole refi deal" solely for personal benefit - as if other the people in the group were incapable of doing their own math.

Over the years I have seen my TIC partners get exasperated. Once in awhile there might be a hallway encounter where someone needs to complain about Sunset Scavenger, or the water bill, or a cleaning person who doesn't really clean. But it's never personal. The individual is just having a vent about an issue. This is totally fair in my book. We do, after all live together and face challenges together trying to run a building in a City that sometimes seems to go out of its way to hobble our enterprise. If a partner needs an ear from time to time that's OK by me.

We all have demanding jobs and work long hours and making joint decisions is not always easy. But there's no excuse for being mean. People, if you want to deflate the joy in your co-owned household and derail your TIC partner relationships make cutting personal comments to your partners at TIC business meetings when you disagree with them on an issue.

Good Faith Closing Cost Estimates

2007-06-12T20:14:00.000-07:00

After much hemming and hawing and debating and fierce negotiating with the bank my group has decided to move forward with fractional loans. When pushed the bank made some concessions. After conferring with the title company they discounted or eliminated several of the line item fees on our good faith closing cost estimate. The bank would not move at all on loan terms or points. I would advise anyone who is procuring a new loan or a refi to insist on the good faith estimate. Take the time to read it. Make sure you understand all the line items. Many of those fees are arbitrary. The bank and the title company (or the mortgage broker) will charge you whatever they can get away with. If you are asleep at the wheel that could be quite a lot.

Fractional Loan Grrrrr

2007-06-02T10:34:00.000-07:00

Has it really been two weeks since my last post? That's what a new job will do to a blogger. Anyway, in the midst of immersion into my new position my group has been wrangling with the bank about our fractional loan applications. The way it shakes out even the best of us - those with extraordinary 800+ credit ratings, long time employment with stable entities like the federal and local government, a low loan to value ratio on our property, and a perfect seven year payment record on our current mortgage - are being offered the following:

5/1 ARM
7.25% interest rate
30 year ammortization
1 year LIBOR index
2.25 margin
5, 2, 5 loan cap
3, 2, 1 prepay penalty

The estimated fees for a $300,000 loan are about $5,500, plus a $400 appraisal charge and legal fees for updating our TIC agreement.

When I average the $6,000 in fees over five years the loan is costing me $100 a month more than the face value of my new monthly payment. That puts me just about even with what I am paying now on an assumable group loan, interest only note. And in five years if we don't condo convert I will be forced to either pay for another round of refinancing or pay exorbitant rates attached to an ARM. (Of course with a fractional paying the loan down is another very appealing option. But for purposes of this discussion I am assuming most TIC owners do not have large cash reserves for a big paydown.)

The bottome line is there is no financial incentive to convert our building to a fractional loan. W are simply paying for the privilege of gaining some liquidity. The value of increased liquidity is such that most of the people in my group would go forward with this scenario. However, we have a person in the group who is not as stellar as the rest of us from the underwriter's perspective. And that person is being offered loan terms that are significantly worse than those we have now. So either the bank is going to have to negotiate with us or we may decide to scuttle the deal and try again in six months or a year.

This aspect of TIC ownership is emotionally very difficult for some of the people in my group. Most of us are successful, hardworking, mid-career individuals who in any other scenario would qualify for the best possible rates and terms the market has to offer. Because we own a TIC we are being offered the kind of deal that gets handed out to high risk borrowers.