Archive for January, 2008
To TIC, or Not to TIC…
January 25, 2008
There’s an increasingly popular form of ownership these days, called a TIC, or “Tenants in Common.” It’s been around for ages, really - holding title as “Tenants in Common” is one of the most popular ways to hold title - for example, if you were to buy a house with a friend, you would most likely choose to hold title as Tenants in Common, each owning perhaps 50% of the property, but you would each have access to the entire property.
Nowadays, there’s an increasingly popular form of TIC ownership, where you buy a portion of the property, but you get exclusive use of just a section of it. This has been happening in San Francisco for a long time, where people would buy into a large Victorian home. As part of the purchase, they sign a TIC agreement which grants them exclusive use of one bedroom, and allows them unfettered access to common areas, like the kitchen, bathrooms, living room, etc.
I have yet to see that kind of TIC project here in Santa Cruz, but something we are seeing more of is subdivision of, say, a four-plex into a TIC property. Normally with a four-plex, there is one APN (Assessor’s Parcel Number). Any number of people might have an ownership interest in the parcel, but without a separate TIC agreement, all owners would have equal access to the property. Now what we are seeing is that some multi-family properties are being turned into de-facto condominiums via TIC agreements.
It’s difficult to turn a multi-residential building into a condominium - we haven’t had an apartment-conversion project here in Santa Cruz in quite some time, I suspect because the cities and county are no longer allowing it. When an apartment complex is converted to condominium use, it goes from a single APN to multiple APNs, with a separate parcel number for each unit. The owners of the units are also given easements to use common areas, like the parking lot, etc.
With a TIC agreement, the property remains a single parcel, and people who buy into the property become “Tenants in Common” with the other owners of the property. Per the TIC agreement, each owner is given exclusive use of a portion of the property - e.g. in a four-plex, each owner would have exclusive control of one unit. As with a condo, the owners all have to pay some kind of HOA (Homeowner’s Association) dues, which goes for fire/earthquake/liability insurance and exterior maintenance (painting, groundskeeping, roof, etc.).
So really, a TIC is in effect much like a condo…except when it comes to financing. I have some clients who are looking to buy a place here in Santa Cruz, and they were interested in one of these TIC projects that are currently on the market. They were leaning towards making an offer on one of the units, but then their mortgage broker brought some bad news: the down payment requirements for TICs are higher than for a house or a condo, and the interest rate is also higher, by about 1.5%.
When I go looking at property, the first thing I look for is reasons not to buy the property. Foremost in my mind is, “Are my clients going to be able to sell this property when they need or want to?” I look for anything that would make a property hard to sell, and I point these out to my clients. We actually looked at a couple of different TIC projects, and they were both beautiful. There were eight units in total; two were in escrow, and six were available. Both projects were in the Seabright area of Santa Cruz, which is a popular neighborhood near the beach. Why were these units still on the market?
To twist a cliché: it’s the financing, stupid. My clients wouldn’t have any problem with the down payment, and they could have handled the higher interest rate. That wasn’t the big issue. The big issue was, how do they get out of the property? The financing is a big turn off, and bars a lot of would-be buyers from writing up offers on the property.
So, they’re taking a pass on the TIC for now. If you’re interested in buying into a TIC, I think that’s fine - but make sure the price you pay reflects the difficulty you and other buyers will face in getting financing.
Posted by SantaCruzBroker at 11:50am
No Comments »
Short Sale Podcast
January 24, 2008
I was reading the California Association of Realtors blog today, and I came across a Podcast about short sales. It’s an MP3, check out the link:
http://media.car.org/pods/EdRealtorEp1_ShortSale.mp3
It’s part of their series “The Educated Realtor.” Strangely, it does not seem that this podcast is on iTunes, I don’t think you can subscribe to it, you need to subscribe to their blog, and I guess they’ll just post these podcasts there from time to time. And, while this is aimed at Realtors, it’s information that anyone considering doing a short sale (either selling a home through a short sale, or buying one) will find of interest.
A quick note: during the podcast, they point out that the amount of debt forgiven by the lender(s) will be treated as taxable income by the seller. This is no longer true -
Posted by SantaCruzBroker at 12:08pm
No Comments »
Getting a Fix on Fixer Uppers
January 23, 2008
I added a new blog to my Blogroll today - “Bigger Pockets”, a blog about real estate investing. They put up a great post called “Putting Lipstick on a Pig.”
[From Lipstick on a Pig | Real Estate Investing for Real Blog]
Who hasn’t had the rehabber’s fantasy? Let’s buy that run-down house, fix it up and make a fortune!
Yeah, good idea! I see this all the time - and I see it especially in houses that are marketed as short sales (pre-foreclosure) or as REOs (bank owned properties, where the bank has already foreclosed). It’s a sad, but classic tale: someone buys a pig of a house, usually pays too much for it, then sinks too much money into a rehab job, and then tries to sell it, again, for too much. And the terrible thing is, the house has to sit vacant while the rehabbing is going on, and will almost always be vacant while they are trying to sell it. So, every month, the hapless rehabber is pouring thousands of dollars into a mortgage payment.
It’s also true that many people seem to have no clue that you don’t want to rehab a property to the point where it becomes the nicest house in the neighborhood. When I was out looking at property this weekend, I saw that a couple of places, where people had just over-upgraded their houses way beyond the norm for the neighborhood, and were asking prices way out of the neighborhood range.
I touched on this in a blog entry I made a few months back, about a property that was being sold at auction. Same problem - too nice of a house for the neighborhood. What you want to do is buy a home that you can buy far below the median price for a neighborhood - and to do that, you’ll usually have to low-ball the sellers and negotiate aggressively. Then, rehab it to the point where it will sell just a tad bit below the median for the neighborhood. Doing that is tricky - you have to know which parts of the house to rehab, and you have to keep a tight eye on costs.
I do see successful rehab projects, and I do know people who have made money at it. It seems, though, that for every success story there are two or three stories of folks who got burned by their rehab project. Don’t let that be you.
Posted by SantaCruzBroker at 9:08am
No Comments »
So Sue Me
January 22, 2008
Have you heard? Maybe not. It’s a story that’s making the rounds in the blogosphere. I don’t spend a heap of a lot of time in the blogosphere, this came to me by way of my dad. Here, check it out:
[From Feeling Misled on Home Price, Buyers Sue Agent - New York Times]
Great! That’s just what we Realtors need right now. Now, I’m not saying that some Realtors don’t deserve to be sued, and maybe they even be deserved to be sued for things they’ve told their clients about the future value of their real estate purchase. As I drive around in Watsonville and see house after for-sale house, and I see all the wave of foreclosures and short sales wreaking havoc on the community, I can’t help but think that yeah, there must be a few bad apples out there in Realtor and mortgage broker land.
I guess whatever poor Realtor sold that home failed to provide his clients with the handy “Market Conditions Advisory” form provided by our good friends, the California Association of Realtors. This advisory states, in part:
Real estate markets are cyclical and can change over time. It is impossible to predict future market conditions with exact accuracy … In a less competitive or “cool” market there are generally more sellers than buyers, often causing real estate prices to level off or drop, sometimes precipitously. In light of the real estate market’s cyclical nature it is important that buyers understand the potential for little or no appreciation in value, or the actual loss in value, of the property they purchase.
That pretty much sums it up! Too bad this form isn’t actually required. I’ve never used it. It’s not one of the forms on the checklist we need to close the file after escrow. Note to self: start getting buyers to sign this form, especially the ones I think might turn around and sue the bejesus out of me. 
Posted by SantaCruzBroker at 11:26pm
No Comments »
A Sign of the Times - Foreclosure Auctions
January 22, 2008
Yesterday I was out and about, checking on some listings down in Watsonville. I drive into one condo complex that has been especially hard hit by foreclosures and short sales - there are over a dozen units for sale in a complex that probably doesn’t have more than 75 units in it. Right as I drove up the main road, what should my wondering eyes should appear, but this sign, nailed to the garage door of the unit:
Wow. That is something you definitely don’t see every day. It’s a sign of the times, that’s for sure. This unit had previously been on the market for some months, listed as an REO. When it first went on the market, it had an OK price, but the lender/owner (your good friend and mine, Countrywide) did not cut prices quickly enough to keep it competitive in the market, and now it’s on the auction block.
Well, being the Internet-savvy Realtor that I am, when I got back to my office I hopped on the web site, to see what the scoop was. It seems that this auction company is holding a huge auction on February 23. They are auctioning off six properties in Santa Cruz county, and hundreds more from other parts of northern California. Here’s a link that shows what they’re selling in Santa Cruz County:
US Home Auctions - Santa Cruz County
There are a number of details (that’s where the devil lives!), of course - but they are all explained on the web site, just hunt around. Some details are that you need a $5,000 cashier’s check to bid, and you must bring your checkbook because you will need to put down a 5% cash deposit.
I was talking to a colleague of mine about this at our Tuesday office meeting, and he said he knew about this because he saw a similar such sign posted on one of the other properties they are auctioning off. He said he had been to one of these auctions previously, when one of these very same properties did sell, but the deal must have fallen apart, because here it is back at auction again. He also said that the winning bid was about 4 times higher than the opening bid.
It certainly is an exciting time to be in Real Estate!
Posted by SantaCruzBroker at 1:22pm
No Comments »
Blog Entries
