will a TIC agreement on a duplex that divides equity and profit "as if" the house was condo-converted work

Question

a friend and I bought a duplex with the intention of condo converting so that we could invest in our respective units and sell when we want. but we want to sell at the same time and a condo-conversion in our area is not worth the costs, so we have the idea to add a clause to our tic contract that will divide equity and profit from the single sale as if it were two condos. we figure on having each unit appraised as if it were a condo and then splitting profits from the single sale according to a ration based on the "as if" appraisal. Is that as simple as it sounds?

Answer 1

Not really, as Tenants in Common can independently sell their share without the consent of the other tenant. Anything you add to a contract won't supersede the deed itself.

Since the property isn't divided legally this is a very dangerous road to travel. For one thing you can't get individual appraisals of the 2 apartments since the property isn't legally divided.

A smarter way to proceed would be to form a Real Estate Investment Trust and sell the property to the trust. This way the trust is the legal owner and any agreements within the trust would be legally enforceable without having to mess around with the deed.

Consult with a qualified real estate attorney for further advice.

Answer 2

This would be a bad idea, and I'll tell you why. On duplexes, very, very few banks are doing a non-owner-occupied loans on duplexes, so you would be significantly limiting your sales to individuals that could actually find these loans...and they have very high interest rates.

An owner-occupied duplex loan is what you got...and that is what enabled you to close the deal.

As an agent, I would recommend AGAINST client purchasing one-side of a duplex. These are poor investments because it is all-too-easy for maintenance to fall behind with only two owners, two owners for an HOA membership....you see where this is going?

They are very, very poor investments for individual buyers. The property would be more competitive if you sold it as a duplex, which has the asset of one side bringing income to the other owner...and I would have no issue recommending that property to a client.