'Tenancy in common' opening doors
A row of homes line the street near the Golden Gate Bridge in San Francisco, California.
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Tess Vigeland: We've been calling it a buyer's housing market for several months now. You'd think with all the foreclosures and price markdowns that it'd be easier to find a nice house for a reasonable price, but in a lot of cities it's still incredibly expensive to buy a place.
So people are teaming up to buy multi-family buildings. In San Francisco, the arrangement is known as "Tenancy in Common."
It's been around for almost two decades, but Rachel Dornhelm tells us it's more trendy than ever these days.
Rachel Dornhelm: The big lesson in today's housing market? Mortgages can be risky.
So imagine going in on a million dollar home loan with three strangers.
Carla McKay: By the end of the meeting, let's also get settled up. Because I know everyone has laid out money for expenses...
That's Carla McKay at the first house meeting for her new Tenancy in Common. She's talking about paying for doormats and home insurance. She's now the co-owner of this three-unit building in San Francisco's hip Mission District. The other owners include a couple, who were McKay's old neighbors, and Matt Ramon, found through a real estate agent.
Matt Ramon: We met that first time and I think it was pretty obvious. We're totally in line with how we want the place and our expectations and we got along. No one seemed too weird...
Over wine and cheese the four professionals decide how to split the cost of the garbage bill (by person), the cost of the locksmith (by unit), and the cost of insurance (by the percentage of the building they own) -- sound complicated? It can be, but it's worth it for those like Carla who otherwise couldn't get into the market:
McKay: I just walked in here and I was like, "Oh, this is nice" and I can afford it because it's a T.I.C., it's not a condo.
Carla, a vice president at the California Bankers Association, bought the whole building with her partners for almost $2 million. The seller was happy because he got more than if he'd just sold it as a rental property. Carla's group was happy because they paid about $400,000 less than if they'd bought individual condos. Where's the downside?
Lyssa Paul: Resales.
That's housing lawyer Lyssa Paul. She says it can sometimes be difficult for co-owners to get out of a shared mortgage. Then, there are your housing partners:
Paul: You have to get along with people or try. You have to understand you're cohabitating.
This is where Tenant in Common agreements come in. Plenty people around the country co-own property, they just don't have the legal agreement that was popularized by Lyssa's firm in San Francisco. Without it, co-owners legally have to split things evenly, but the inch-thick document tries to head off disputes. It spells out rules about percentages owned, parking, noise and the number one co-housing killer:
Paul: Pets are a big issue with people. More people fight about pets than money. So we try to be very specific about the agreements on pets.
Some states have laws that make these Tenant in Common agreements difficult if not impossible in order to protect existing renters and even though San Francisco allows them, the city imposes lots of restrictions. Like in some cases, if you buy a building, you have to occupy it for a number of years before you rent it. But Lyssa says the reach of these more formalized co-ownership agreements is growing:
Paul: We've done them up and down the coast of California. Obviously San Francisco and the peninsula, Santa Barbara, Los Angeles, San Diego. I had a client recently in Chicago, so it's spreading.
Lyssa advises people interested in a shared mortgage to only deal with others willing to reveal their financials. She says you can't rely on the bank verifying your partners' creditworthiness. If a default wasn't your fault, the bank still gets the building.
In San Francisco, I'm Rachel Dornhelm for Marketplace Money.