San Francisco’s real estate market is as dynamic as its famous hills. With a variety of investment options available, potential buyers often find themselves weighing different opportunities. In this post, we’ll explore two popular options: purchasing a vacant 2-unit building and buying each flat as a Tenancy in Common (TIC).
Understanding Vacant 2-Unit Buildings
A vacant 2-unit building in San Francisco offers a unique opportunity for full ownership of a property with two separate living spaces. This setup allows you to manage the property entirely on your terms, choose your tenants, and optimize rental income. The benefits are significant: you can potentially generate substantial rental income from two units, and fully control property management and rental strategies. Additionally, owning both units often leads to a higher degree of property appreciation over time, providing a lucrative long-term investment.
The TIC Alternative
Tenancy in Common (TIC) is another attractive option for those looking to enter the real estate market without the financial burden of purchasing an entire building. In a TIC arrangement, multiple owners share the ownership of a property, with each owning a specific share. This method can significantly lower the entry cost and shared responsibilities mean lower ongoing costs for maintenance and repairs. Moreover, in a 2-unit building in San Francisco, if the two units are owner-occupied for a year, these TICs can start the condo conversion process in just a year, potentially increasing the property’s value considerably.
Financial Considerations
For a vacant 2-unit building, the financial implications include the ability to secure traditional mortgages, unlike TICs, which may require special financing such as fractional TIC loans. However, TIC financing has evolved. Fractional TIC loans allow each owner within a TIC building to have their own loan with no responsibility for the mortgages of other co-owners. These loans now offer 30-year fixed-rate options for greater flexibility. Tax deductions for property expenses and rental income can also make a significant financial impact. Conversely, TICs often face higher interest rates with fractional financing, but shared expenses can ease individual financial burdens.
Legal and Regulatory Considerations
Navigating zoning laws and understanding landlord obligations is crucial when managing a vacant 2-unit building. For TICs, it’s essential to have a clear and detailed agreement that outlines the rights and responsibilities of each co-owner to prevent future disputes and ensure smooth operation.
Prospective Market Trends
San Francisco’s real estate market continues to grow, with increasing demand in many neighborhoods. Both vacant 2-unit buildings and TICs offer different paths to capitalizing on this growth, depending on your financial situation and investment strategy.
Current Opportunity: 209-211 Cole Street
While this may be self-serving, I have a listing in NOPA that is a vacant 2-unit building also listed as two separate TICs at 209-211 Cole Street. This property provides a prime example of the dual opportunities available in San Francisco’s real estate market. You can choose to purchase the entire building and enjoy the benefits of full ownership or opt for one of the TICs (209 Cole or 211 Cole) to reduce the financial entry barrier while still securing a stake in this vibrant neighborhood.
Conclusion
Whether you opt for a vacant 2-unit building with its independence and income potential, or a TIC with its lower entry costs and shared responsibilities, both paths offer compelling opportunities in San Francisco’s bustling real estate market. Consider your financial goals, risk tolerance, and the level of involvement you wish to have in property management when making your decision. Feel free to reach out to me for additional information.
