Can’t afford to buy a house in San Francisco? Try these types of homes instead

A tenancy-in-common in San Francisco

3 alternatives to single-family houses in the Bay Area

One fundamental truth about San Francisco real estate is that it is expensive. However, San Francisco does offer several options for renters to get into the real estate game without breaking the bank. These options come in three forms: condominiums, cooperatives or “co-ops,” and tenancy-in-common or TIC properties. So what are the differences between the three?

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Tenancies-in-common in San Francisco

Tenancy-in-common (TIC) is an increasingly popular form of home ownership in the most expensive parts of California. They are a way for people to come together to purchase a home or property. By entering into a tenancy-in-common agreement, each owner will own an individual share of the property instead of just their own unit within the building.

You can start your own TIC by entering an agreement with friends, partners, family members, or buy into an existing one. These properties usually look like a condo in their real estate listing but are typically 10-20% cheaper than a regular condo. 

The median condo price in San Francisco is $912,700, but TICs average between $730,100 and $821,400. Plus, you pay 10-20% less in property taxes, so there’s a significant savings when comparing TIC properties, condos, and co-ops.

Each resident’s percentages are not necessarily evenly split; the TIC agreement will determine how much each participant owns.

How does a tenancy-in-common work?

Let’s say your TIC agreement specifies that you own a 10% stake in a 10-unit building; that would mean you own 10% of the building but not your actual unit. However, your TIC agreement will outline exactly which unit you’re entitled to based on your ownership stake. 

Suppose your family and one other family buy a tenancy-in-common property. In that case, you are essentially owners in common and share the entire property evenly (assuming that’s what the TIC agreement specifies). 

Your percentage stake may be different from your TIC partners for several reasons: 

  • The floor where your unit is located Many TICs are co-owned single-family homes, but you can also buy into a duplex or triplex and own a different share if your unit is a garden-level space or a penthouse.
  • The square footage of your unit Many TICs are split into separate units for the people living there, so your initial investment and ownership stake may be smaller if you commit to a smaller unit. 
  • Perceived desirability in comparison to other units Just like the floor where you live may change your ownership stake, the desirability of your unit will, too. You may buy in for a lower investment if you live on the side of the building without a view versus if you’ve got a straight shot to the Golden Gate Bridge.

As with any legal document, read your tenancy-in-common agreement carefully before signing. Your claim to the property depends entirely on the contract, so it’s critical to understand your rights precisely. 

If you plan to buy into an existing TIC, the former owners’ lawyers may draw up the TIC agreement, so you should strongly consider enlisting a lawyer to look it over on your behalf.

The pros of buying a TIC

  • They have the qualities of single-family homes, apartments, and condos all in one
  • They are a less expensive way to buy into the pricey San Francisco housing market
  • You’ll pay lower property tax bills than single-family homes and condos
  • They allow budget-conscious buyers to own property in neighborhoods that would otherwise be too expensive
  • They appreciate at the same or similar rate as condos
  • You’ll have the legal potential to convert your TIC to condos

The cons of buying a TIC

  • They are legally complex, mainly since your TIC agreement is not recorded with the county and is not on the deed
  • If you want to rent your TIC out, you’ll be subject to rent control laws
  • TICs often come with HOA fees
  • Converting to a condo is possible but complicated and not guaranteed since it would require you to win a lottery 
  • You’ll likely need to finance your purchase with a fractional mortgage that has higher interest rates
  • You will need to find a lender who will approve a mortgage for a TIC

Co-ops in San Francisco

Cooperative housing, or a co-op, is similar to TICs since you don’t own the specific unit you live in but share ownership of the building with the other residents. In a co-op, though, you purchase stock shares in a third-party company that owns the building instead of buying a percentage of the building itself.

Co-ops are run more communally than the other multi-family living options because they operate like a corporation. Since a company owns the building, share-holding residents appoint a board to run the facility’s operations, and shareholders are considered co-owners who are expected to chip in. 

co-op housing in San Francisco
Co-ops are similar to TICs since you’ll own a portion of the entire building, but you’ll buy shares into a corporation that owns the property

How co-ops work

When a resident wants to move out of the building, they’ll sell their shares back to the corporation that owns the building, which will then sell them to the next tenant. 

Owning a share in the corporation entitles you to a unit in the building. Once you receive your stock certificate, you’ll receive a proprietary lease that grants you access to your unit. You’ll also begin to pay monthly fees, similar to HOA fees, that contribute to the operations of the building. 

You’ll also be a voting member of the building who can appoint board members and offer input on how fees should be spent and what projects should be prioritized. Sometimes, you’ll be expected to provide time or resources for repairs, yard maintenance, or administration. 

Depending on the type of co-op, you may gain little or no equity while living there. 

In a market-rate co-op, you can sell your shares at market rate when you move out, but since there are more restrictions for buying and moving into a co-op, your shares will likely appreciate slower than if you owned your unit outright. 

The upside is that buying into a co-op is a lot less expensive than if you were to buy your unit outright. 

The pros of buying into a co-op

  • Least expensive multi-family option
  • You can choose your neighbors
  • You have a more significant say in the building’s operation than with a condo
  • Communal living often leads to tighter community and closer neighbors

The cons of a co-op 

  • Buying into a co-op can be lengthy since the board will scrutinize you more
  • Financing can be tricky with higher down payments and fewer lenders willing to provide a loan
  • Co-ops do not allow for rentals, so you can’t use them for passive income or investment
  • Harder to build equity
  • You will need to find a lender who will lend on a co-op

Condos in San Francisco

The difference between TICs, co-ops, and condos in San Francisco, California, boils down to ownership. With a condo in San Francisco, you own the unit rather than a percentage of the building.

How condos work

When you buy your condo, you own that unit individually. But, since that unit is in a larger building, you also get a share of the common elements of the building, including yards, garages, recreation rooms, the lobby, gyms, pools, and other amenities. To pay for these amenities, residents will also pay a homeowner’s association (HOA) fee or condo association fee, which is assessed monthly. HOA fees in San Francisco average around $460 per month.

Since you own your unit, you’ll gain equity as your condo appreciates over time like you would if you bought a single-family home. In general, condos tend to appreciate at a slower rate than single-family homes. This is due, in part, to the fact that you don’t own the building or land around the condo.  

The upside with buying a condo is that you own a private residence in the building, then share common areas with other residents. Each separate condo in the building has its own deed recorded with the county like you would with a single-family home.

Condo associations usually don’t have many financing restrictions; if you can get approved for a mortgage, you can buy a condo. The average price for a condo in San Francisco is around $1.25 million.

low angle view of balcony against sky
Condos are the most similar to single-family homebuying because you buy your unit directly and gain equity as it appreciates

The pros of buying a condo 

  • Usually less expensive than single-family homes
  • Shared common areas and maintenance
  • You can gain equity just like with a single-family house

The cons of buying a condo 

  • Condo values tend to fluctuate more with the market
  • Condos don’t appreciate as fast as houses
  • Monthly HOA fees can increase the cost of living and eat into your budget
  • Most mortgage loan investors require approval of the condominium complex
  • You will need to be sure to find a mortgage lender who can lend on the condo you are proposing to buy 

The different multi-family types of homes to buy in San Francisco

When it comes to San Francisco real estate, there are many options. Tenancy-in-common is a great way to get into the real estate market. Co-ops work well if you are picky about your neighbors and want a more significant say in what happens in the building. Condos allow you the opportunity to own your unit in a building.  

Check out our listings if you’re ready to jump into San Francisco real estate.

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