Co-Owning Property With Strangers Can Make Homes In LA Cheaper -- But It's Also Displacing Renters
There's a new way to buy a home in Los Angeles, one of the country's most unaffordable real estate markets.
But you must be willing to co-own property with strangers. And rent-controlled tenants may have been forced out of the building you're moving into.
It's called "Tenancy in common," or TIC for short.
It's geared toward younger, moderate-income buyers who can't afford sky-high prices for L.A. condos and single-family homes -- buyers like restaurant owner Shawn Nee. He currently rents an apartment in Hollywood.
"I've lived in this area for 20 years," Nee said at a recent TIC open house. "My son goes to school in this area. So we're trying to find something where we've lived for a long time."
Nee said other listings in his neighborhood are way out of his price range.
"We would not be able to afford anything in this area," he said. "We definitely wouldn't be able to afford a single-family home, that's for sure."
A RENOVATED HOME IN HOLLYWOOD -- AT A 15% DISCOUNT
Christopher Stanley, a TIC developer with Vanguard Properties, gave Nee and other prospective buyers a tour through the newly refurbished Hollywood property, showing off the renovated kitchens while wearing protective shoe covers to avoid scuffing the new hardwood floors.
"This building has a little bit of a craftsman, 1920s feel," Stanley said in a sunny, two-bedroom unit listed at $529,000.
"I would say it's about 15% lower than a comparable condo," he said. "TICs in L.A. are definitely a discount."
Tenancy in common is generally a cheaper route to homeownership because it's a way of buying property in L.A. that's relatively new. The model has existed in San Francisco much longer. But in L.A., some would say it's unproven and risky.
So far only two lenders will work with TIC buyers in L.A. They don't offer mortgages with fixed interest rates. And unlike a condo, buyers aren't just purchasing their unit. They're buying a fraction of the entire building and signing a TIC agreement with people in the other units to share property taxes and other responsibilities.
Co-owning property with strangers isn't for everyone. But TIC brokers say it appeals to a lot of buyers.
"It really opens up homeownership to more people," said Liz McDonald, who runs a brokerage called The Rental Girl. Her company has sold 54 TIC units since 2016 and has an additional 170 in development.
"It's a way to help renters get their foot in the door," McDonald said. "What's happening is renters who are qualified to buy, but can't afford it, are saving and saving and saving. And the market is growing faster than they can save."
L.A. County home prices have skyrocketed by more than 73% since 2011, according to an analysis by the Associated Press. L.A. wages, on the other hand, have grown only 17% over that period, making homeownership an ever more distant dream for many families.
Tenancy in common is still in its infancy in Los Angeles. But USC professor Gary Painter said it could evolve into a creative solution for combatting the region's housing shortage.
"I think that TIC is going to be a much more important phenomenon in single-family homes," Painter said.
For instance, he envisions multiple families co-owning a large house together. Or, homeowners letting a roommate buy a fraction of their house to occupy a spare bedroom.
"Something like TIC or other shared ownership structures are important to think about as a mechanism to actually allow low- and moderate-income households build equity," Painter said.
'HOW IS THAT HELPING'?
Tenancy in common may provide a leg up to some renters currently shut out of homeownership. But TICs are also pushing other renters out of their homes.
That's because TICs in L.A. are typically created by removing tenants from older, rent-controlled buildings and then renovating those buildings for sale. So far, these conversions have been concentrated in desirable neighborhoods like Silver Lake, where condos and single-family homes are out of reach for many families.
The apartment where Matthew Nauser and Elizabeth Abrams live with their preschool-aged son sits on a quiet street in Los Feliz. On a recent visit, their building was almost totally empty and dark, except for their unit in the back.
"It's a ghost town," Nauser said. "We're the only light in the building. We've been here on our own for four months."
Nauser and Abrams were the last hold-outs in their rent-controlled building. But they eventually had to accept that they couldn't stop the new owners from converting it to TICs.
JHJ Capital Investors, LLC bought their fourplex in April 2019 for $1.9 million. JHJ principal Ian Jack said the company wants to bring homeownership opportunities to millennial buyers currently shut out of the market in L.A. They plan to price the Los Feliz units starting at $800,000 and list them with Compass, a real estate brokerage pursuing TIC buyers in L.A.
Jack considers $800,000 affordable in a neighborhood where single-family homes sell north of $1 million. JHJ offered Nauser and Abrams the option to buy their unit for $750,000 -- a price the couple said they couldn't afford.
"I think that TIC fills a niche," Jack said. "It creates affordable housing for those that want to buy. I think that opens up rental units that were being rented by tenants that are now buying."
Abrams doesn't accept that argument.
"OK, so you're trying to bring affordable housing to the housing market by displacing people from rent-controlled units," she said. "How is that better? How is that helping?"
Cardboard boxes fill the couple's dining room as they pack to leave for a new home in Lincoln Heights. The couple negotiated a voluntary buyout with the new owners. But Nauser wishes they could have stayed and fought longer.
"I'm just not sure why it's so easy for a developer to displace families," Nauser said. "I think very few people are thinking about the human factor."
Finding another apartment in Los Feliz isn't realistic, the couple said. Rents in the neighborhood are now as much as $1,000 per month more than what they're currently paying for their rent-controlled apartment.
They had planned to send their son to school here. But now, they're leaving behind an area with one of the city's most desirable public schools. It's just one of the reasons they're heartbroken to have to leave the neighborhood.
"There are so many families on this block in particular," Abrams said. "The whole area is so walkable and great. And the longer we are here, the more friends we made."
HOW BUILDINGS GET EMPTIED OUT
A voluntary buyout like the ones Nauser and Abrams took is also known as a "cash for keys" agreement. In some cases, long-term renters being displaced by TIC conversions have negotiated buyouts of more than $50,000.
Jack said JHJ has so far converted one other fourplex in Larchmont Village, where tenants left after receiving buyouts of more than $40,000. He said the company has never had to evict a tenant and avoids projects that would involve displacing elderly renters.
But other TIC conversions involve formal evictions under the Ellis Act, which allows apartment owners to remove buildings from the rental market. In an Ellis Act eviction, tenants are owed much lower mandatory payouts, starting at a little more than $8,000. For long-term residents who have to give up below-market-rate rents for today's going rates, that money won't last long.
Mimi Le became involved in tenants' rights organizing after the new owner of her building in Los Feliz tried to clear out tenants for a TIC conversion. She was able to fend off those plans and stay.
But she said other renters are being formally evicted and sometimes harassed into leaving.
"I think that if new buyers really knew what the process was to empty out a building for a TIC, they would be completely turned off," Le said. "They're not being told what's happening behind the scenes."
TIC BUYERS SAY THEY'RE FEELING SQUEEZED, TOO
Prospective TIC buyer Shawn Nee said he understands how displaced renters feel. He came to the open house in Hollywood because he's on the market after getting an eviction notice at his rent-controlled apartment.
"The emotions are pretty new," Nee said. "We're just trying to focus on finding a place to live and survive and take care of my son."
The city doesn't have good statistics on how many rent-controlled apartments have been converted to TICs. L.A.'s City Council is considering a plan to track conversions. Councilman Mitch O'Farrell introduced the plan.
"The displacement crisis has been affecting Los Angeles for a long time," O'Farrell said. "We certainly do not need speculators to find a new tool to further the displacement crisis."
But O'Farrell admits it would take some detective work to track TIC conversions. Building owners don't have to inform the city that a TIC project was the reason they bought tenants out or served them with Ellis Act evictions.
Nee said he doesn't have time to wait for the city to fix its lack of affordable housing. For now, he'll do whatever is best for his family.