Condo vs. TIC vs. Co-op
San Francisco is, plainly, a dense city. As such, a lot of the housing stock comes in the form of multi-unit buildings. If you’ve been house hunting, and looking at units in these buildings, you may have seen that there is more than one kind of property: condo, TIC, and co-op.
Each of these is a different approach to ownership of the individual living spaces in a multi-unit building. Typically, when you own a single-family home, you solely own the house and the land, and all rights and privileges that come with that ownership; this is known as fee simple. When a property is owned by multiple parties, there are a number of ways they can hold ownership of their respective spaces.
So what are these kinds of properties, and what do they mean to you as a prospective homeowner?
Condos
Condos are the most similar to owning a single-family home in the sense that you alone own your unit—from the walls in—in fee simple. There may be additional items that are designated to your unit for exclusive use, such as a parking spot, that are outlined in the deed. The structure of the building(s) itself, any common spaces and systems like lobbies, elevators, outdoor spaces, and so on, are owned as tenants in common with all other owners in the condo community. You get access to those shared spaces, but not exclusive ownership as you have within your unit.
Condos are financed just like single-family homes, and you pay your own property taxes and homeowner’s insurance. Typically, condo communities are run by a board of residents called a Homeowners’ Association (HOA), and fees are levied on the owners to build reserves to be spent against common costs such as utilities, maintenance, staff, and so on. A condo owner can sell their unit at any time without approval from other owners in the community.
Tenancy in Common (TIC)
Tenancy in Common is a way for multiple parties to take title on a single property. This does not necessarily have to mean a multi-unit building, but it has become a popular way to sell smaller multi-unit buildings, typically four units or fewer. Effectively when you buy a TIC unit, you collectively own the building with the other owners, and your share of the ownership is proportional to the size of your unit. For example, if you bought one unit in a three-unit building, and they were all of the same square footage, you would have one-third vestment in the building. Because the units are not technically owned individually, the entire building is responsible for property taxes, insurance, and other common expenses, and must be shared again proportionally, typically in the form of HOA dues. Consequently, if any co-owner does not cover their dues, the others must step up to fill the gap.
It used to be that TIC buildings had to be financed as one unit. This made things complicated when parties bought into or sold their units, as the entire building would have to be refinanced to include the new owners. Nowadays, some lenders offer fractional loans that individual buyers can take specific to purchase price of their share of the building, but this is a smaller subset of lenders than those that do traditional home financing.
Under certain conditions, TIC buildings can be converted to condos. This is very desirable, as it tends to increase property values significantly. However, it has become increasingly difficult in recent years, as the city has throttled permitting for condo conversions over concerns of displacement of rental units and affordable housing.
Co-operatives (Co-ops)
On the surface, a co-op looks much like a condo or TIC, but there’s one major difference. Co-ops are owned by a corporation, and you as the buyer buy shares of that corporation proportional to your unit. This affords you a proprietary lease to your unit, and full use and enjoyment of the common areas. The mortgage, taxes, and insurance on the property are in the name of the corporation, and you as a co-op owner are responsible for a share of that on a proportional amount based on your square footage, much like HOA fees. (If you’re financing your purchase, the loan covers the cost of your shares in the co-op, and you pay that as if it were a mortgage.) The potential downside here is that, if any shareholder does not cover their co-op fees, the remaining shareholders must be assessed additional amounts until the amount of the defaulting shareholder is covered. Moreover, you cannot purchase, sell, or sublease your unit without approval from the governing board or majority of other members of the co-operative. This is intended to weed out any potentially unwelcome members, subject of course to fair housing legislation.
Financing on co-ops can be trickier, as fewer lenders will lend on them. The upside is they tend to be much less expensive than other forms of real estate, and the HOA fees typically cover property taxes, utilities, insurance, building and grounds maintenance, and sometimes include expanded amenities such as on-site maintenance staff (that will do some repairs in your unit), internet, and so on. Co-ops are far more common on the East Coast, but a handful do exist here in San Francisco.