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How are TIC’s Financed?

How are TICs financed? 

1- Fractional Loan 

Fractional Loans have been available for years and are becoming more popular. Each loan involves a note signed only by the owner of a particular TIC interest and is secured by a deed of trust covering only that owner’s share. Unlike with group financing, none of the other TIC owners are affected by the default or foreclosure.

Remember that a two-unit building that is fully owner-occupied can begin the conversion to condominium after one year. In that case, you may want to consider a short-time term adjustable rate loan. 


2- Group Loans

Group Loans have been the norm for years. With a Group Loan, each co-owner makes his payment to the group and the group collectively pays the lender. The risk, of course, is that the entire group could face foreclosure if one party fails to pay. You manage this risk by thoroughly investigating new co-own- ers before allowing them to buy in, keeping a reserve account with sufficient funds to cover any shortfall, and maintaining strict internal management.

Group Loans may sound riskier than they are in practice. Even though thousands of TIC groups have been formed in the Bay Area over the last ten years or so, default has been extremely rare and foreclosures have been rarer still.