Want to save on a home? Buy it with some strangers
While looking for a home in Los Angeles, Dan Nufer saw a house in the Glassell Park neighborhood that was better than anything else he’d seen — newly renovated and larger than the properties he’d already been outbid on.
“This house was way too nice, in an up-and-coming neighborhood and at the low end of my budget,” he said. “It was too good to be true.”
He asked his real estate agent what the catch was.
There was something different about the three-bedroom, 950-square-foot, single-family bungalow: It was being offered for sale as a tenancy in common.
Neither Nufer, a 28-year-old writer and actor, nor his real estate agent had any idea what that meant. But the deal seemed so good, he was determined to find out more.
What is tenancy in common?
Driven by demand for more affordable properties in desirable neighborhoods, a growing number of renters aspiring to be homeowners are teaming up with strangers to buy properties.
Tenancy in common, or TIC, is not a different kind of property, but a different way to own property. Rather than owning the unit outright, a buyer co-owns the property — whether it’s a small apartment building, townhouse or a piece of land with several single family homes.
Nufer’s home is one of seven houses on a single property that were formerly rentals.
“It is exactly like living in a condo complex,” says Nufer. “Except that legally I don’t own my house, I own 1/7th of the property and I have the right to live in my house.”
The upside for buyers? TIC listings tend to be lower priced than comparable properties sold the traditional way and by pooling their resources, people can buy more than they could afford on their own.
But there are some risks.
Nufer was warned that there would be quirks to this kind of ownership — including limited financing and insurance options, and the need to get a little more cozy with your neighbors. While each co-owner has their own loan, there are shared financial responsibilities, like taxes and maintenance costs, and the group has to figure out how to get those things done collectively.
“I understood the potential risks. And I was fine with it,” Nufer said. “From start to finish, with TICs, I found the bark was much worse than the bite.”
While TIC properties have been sold in San Francisco for decades, Los Angeles has seen a rapid increase in them over the past two years, as rising home prices have pushed many buyers out of the market.
“It was an idea conceived because of the lack of affordability in housing,” says Andy Sirkin, a real estate lawyer who pioneered TIC ownership in San Francisco in 1986 as a way to solve his own housing challenges.
TICs are unlike co-ops and condos. With condos, the property is subdivided into individually owned units, while in coops residents own a share in the cooperative. In a TIC, multiple people co-own a single property, Sirkin says. They usually finance the purchase with a fractional mortgage for a percentage of the property and the right to live in a unit is spelled out in agreement among the co-owners.
Buying a TIC
Elizabeth McDonald, broker and founder of The Rental Girl in Los Angeles, has sold more than 50 tenancy in common units in the past two years, with more in the pipeline.
Her approach, built on her own experience creating a tenancy in common with her brothers in 2001 when she was 23, is to fractionalize homeownership so that more people, especially renters, have an opportunity to buy. This involves setting the TIC community up with a solid TIC agreement, proper insurance and finance management.
The main hitch: the loan. Just a handful of banks offer loans for TICs and the product offered is an adjustable rate mortgage.
But she says that, in a tight real estate market, most frustrated middle-class buyers are willing to accept the limited financing options.
“The buyers who are buying TICs have written 10 offers and lost all of them,” she says. “Their only alternative is to rent. They are going to continue to save, but the market will continue to grow. This is their foot in the door.”
Ownership with strangers
Danny Chammas was astonished when he came across a three-bedroom, 1,100 square-foot, renovated apartment in a four-unit building in the Los Angeles neighborhood of Echo Park. He had been looking to buy for several years and was undeterred by its TIC status.
“The only time I felt a little hesitant about buying a TIC was with the nontraditional loan,” says Chammas, 33, an internal audit manager at a bank. “I was a little nervous about not taking out a 30-year fixed loan. But getting a deal this good on a property like this is not worth giving up for that small of a risk.”
He loves the informal hangouts that occur and knowing that he and his co-owners are in the same place in their lives: first-time homeowners figuring it out together.
But there are times when it’s clear they are more than neighbors, says Chammas. “I know what bank each person banks with,” he says. “If a light in the back goes out. I’ll shoot a text, and say let’s take care of this.”
In Glassell Park, Nufer was the fourth owner to move in. He would drop by the welcome parties as other co-owners arrived.
From the start, there has been business to attend to and things that have needed fixing. The gardener who handles their common areas quit, they all need upgraded air conditioning units and they are working out the logistics for paying their taxes. But they share more than finances.
“I have a little garden and bring my neighbors basil and tomatoes,” he says. “They were strangers. But I know them now, and I’d say we are entering friend territory.”