TIC Financing and Possible Condo Conversion
Hayward, CA · Member since 2020 · 12 posts · 3 votes
My partner and I are looking to purchase a residence a TIC for a two story unit in San Francisco. It's priced well, particurarly perhaps it is a TIC and is scaring away other buyers. Admittedly this is our first experience with TICs and are trying to learn as much as possible about them within our exceptions period.
We are now come to understand that financing the TIC might be an issue, and waiving the financing contingency might not be a good idea. It sounds like the process is much more complex than a standard loan and would need a legal review of all of the TIC documents prior to close which might slow down the process.
One caveat is that it's a 2 unit and the other owner wants to do a condo conversion. This will be a primary residence for us and we'd imagine doing the condo conversion would add equity to the property. I've heard that the fees would be around $20-$30k though. Has anyone dealt with TICs in SF? How did the financing process go? And more generally, how was the TIC experience?
TICs will always sell at a discount to condos as the financing is a bit more specialized. There are several banks that provide TIC financing. Sterling Bank and Bank of SF are two I can think of out of several local banks and credit unions that can do it.
Make sure that there hasn't been an eviction or Ellis Act that can harm the condo conversion. Andy Sirkan law website is a great place for this information. He can also help with the conversion, he will be more expensive than others, but he is basically the godfather of TICs in SF.
It is in your best interest to do the condo conversion. It should increase the value of your property significantly. Make sure that the other owner also has the patience to see it through.
If you’re buying as a tenants-in-common today with an eye toward converting to condos later, start by thinking like a lender. The easiest path—both for your initial purchase and for future resale—is fractional TIC financing, where each co-owner has their own loan secured only by their share and the exclusive-use rights to their unit. That structure keeps one owner’s issues from becoming everyone’s problem and, later, makes it much simpler to sell an individual interest or refinance. Blanket loans still exist, but they tie all owners together, create cross-default risk, and usually force a group refinance when anyone wants out. If you’re serious about conversion and individual exits, fractional is the cleaner lane.
Underwriting on TICs is a bit tighter than on condos, so go in prepared. Most portfolio lenders want to see 15–25% down (more if it's non-owner-occupied), a master insurance policy that names each lender correctly, an HOA-style budget with real reserves, and a modern TIC Agreement. That agreement is more than paperwork—it's your operating system. Make sure it spells out the percentage interests, the exclusive-use/occupancy plan, a clear maintenance matrix (who pays for interiors versus roofs, foundation, major systems), reserves, right-of-first-refusal so transfers don't get messy, and dispute resolution that doesn't require World War III to enforce. The more your TIC feels "condo-like" in governance and budgeting, the smoother the financing and the better buyers will respond.
On 1031 exchanges, TICs can absolutely be exchange-friendly if they’re structured to look like co-ownership rather than a partnership. Keep income and expenses split in proportion to ownership, avoid centralized profit-sharing or a manager with GP-style powers, and coordinate early with your qualified intermediary and attorney. Even if nobody is in an exchange today, build that flexibility in—people’s plans change, and you don’t want your governing docs to be the reason a sale falls apart.
As for the condo conversion itself, the rules are local, but the cadence is similar everywhere. First, run a quick feasibility screen: are you eligible to subdivide under your city's rules, and do any tenant-protection or rent-control overlays complicate timing? Next, a surveyor and land-use attorney will guide you through the tentative map and what life-safety or utility-separation upgrades the city will require. In many buildings, the big lifts are separate (or sub-metered) utilities, egress, and fire/life-safety tweaks. After that, you'll draft your CC&Rs, set up the HOA, and march toward a final map and recordation. Once you have separate APNs and condo titles, you unlock conventional financing and a broader buyer pool. In practical terms, you should budget both time (six to eighteen months is common, depending on jurisdiction and scope) and money (soft costs for mapping/legal/fees plus whatever hard costs it takes to meet code).
Value-wise, expect TIC interests to trade at a discount to similar condos before conversion—financing is scarcer and some buyers are wary of the structure. After conversion, that gap usually narrows or flips because you're offering separately deeded units with mainstream financing. That's why I tell clients to model both exits up front: one scenario where you sell as TIC if conversion drags, and one where you sell as mapped condos. Don't forget to include carrying costs, capex, and the time value of money—sometimes a "cheaper" conversion ends up more expensive if it stretches your timeline.
To tie it together, here’s a short action plan I’ve used on successful projects:
Do a lender pre-flight before you lock your TIC structure: send a TIC-savvy lender your draft agreement, insurance, budget, and a quick building condition summary. Let them tell you what to tweak now so you're financeable later.
Sequence the inevitable upgrades (sub-metering, life-safety) early so you’re not paying twice—those items help with both current financing and future conversion.
When does conversion not pencil? If utilities can't be practically separated, if life-safety/code upgrades are heavy relative to the unit values, or if your city's tenant-protection/lottery rules create multi-year uncertainty, you may be better off dialing in a rock-solid TIC and sticking with fractional loans. But if feasibility checks out and your market shows a healthy condo premium, lining up your docs and improvements now will make the financing easier today and the exit cleaner tomorrow.