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October 19, 2010

How To Figure Out If You Can Sell Your TIC

I’ve been fielding calls and emails regularly from TIC homeowners on long-standing group loans in 3+ unit buildings who want or need to sell their TIC interest. Unfortunately, many of these homeowners are unable to sell, and that turns out to be quite a surprise.

I wanted to put together a checklist to help these prospective TIC sellers determine whether they’ll indeed be able to sell their interest.

1. Pull together all the information for the group loan. You’ll need the original purchase price/date for the property; the current loan amount on the building, and your portion of the group loan. You’ll also need to note the type of first mortgage and current interest rate (i.e., five-year adjustable rate mortgage with interest-only payment at a rate of 5.5%, etc)—and the name of the lender(s) for all outstanding mortgages.

2. Find out if your portion of the loan is assumable. Check with your lender to confirm whether your loan is assumable, meaning whether a new owner can step into the existing group loan without triggering a group refinance. Keep in mind that although your loan may have been assumable at the time of your purchase, the lender may have changed its policy (or the lender itself may have changed). If your loan is not assumable, you will have to qualify for a group refinance if a new buyer enters into the picture.

3. Obtain an estimated current value for your building. Getting the current market value for your building is more important at this point than the value of  your TIC interest. If you’re consulting a TIC loan specialist, he or she could potentially put you in touch with an appraiser who’d do a “mini appraisal” of the property and give you a ballpark value at a reduced fee.

4. Know that your property will be appraised as an entire building, not TIC interests. This is something most TIC owners don’t realize when they’re thinking about simply selling their portion of the building. An appraiser will be determing the value of the building, not the combined value of multiple TIC interests. So if you own a TIC in a four-unit building, your relevant comparative sales will be other nearby four-unit buildings—some of which may be income properties.

5. Determine how much of a loan your group could get in today’s market. Your loan consultant can assist you in obtaining a ballpark value of your building, and then disseminate all your information to arrive at the maximum loan amount you’d be able to obtain on the building. You’ll then have to back out what the other remaining co-owners would have to refinance to see what’s available for the new buyer of your particular interest to borrow on the new group loan. This, in turn, would determine the down payment required by the new buyer.

6. Consider fractional financing for the group. There aren’t many lenders doing these loans right now, and such loans typically require owners to have a lot of equity in their building. The loans also carry higher interest rates and potentially more stringent cash reserve requirements. But this is a good option if all owners can qualify.

7. If the group is able to refinance, confirm the value of your TIC interest. This is where your Realtor comes in; he or she can assess the market and gauge the value of your TIC. As you can see, this is the last step because everything else needs to check out before you can even think of selling.

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