A condominium, or condo, is defined as housing consisting of multiple dwelling units (such as an apartment house) in which each unit is individually owned. Owners of condos have a deed to their unit and under the rules which govern the building (referred to as CC&Rs), also have a share of the common areas, which are part of the property. As a condo owner, you will have your own mortgage and pay your own property tax. Over the years, as housing has increased in price, condos have also skyrocketed.

Looking for a less expensive way to own a home, many people have formed Tenant In Common (TIC) relationships to buy a building. In this case, all owners share the mortgage and property tax (in addition to any other expenses for the property). There is one deed regardless of how many units there are. The advantage is that each person gets a condo-like space without the condo price.

TIC owners of six units or less have a unique opportunity - condominium conversion. California State Law allows for the conversion of existing two-family and multiple-family residential structures into separate individual dwelling units (governed by the California Subdivision Map Act). Once a building is converted, the appreciation in each unit is substantial. But, in order to convert existing structures into condominiums, the structure must be found to conform with all applicable laws, ordinances, and regulations including, but not limited to, those pertaining to building, fire, housing, subdivision, and zoning.

In San Francisco, the city has defined how and when buildings are eligible for condo conversion. Two-unit buildings can apply when both units have been owner occupied for one year by separate, unmarried individuals who each own at least a 25 percent interest in the property during the entire occupancy period. Buildings with more than two residential units must apply for “the lottery.”

For 3-4 unit buildings, one residential unit must be owner-occupied for three years; and for 5-6 unit buildings, three residential units must be owner-occupied for three years before the building can apply for the condo conversion lottery. Note, if someone has been a tenant in a building for three years, and then buys into the TIC, that meets the eligibility requirement (so long as he/she is an owner at the time of lottery entry). The conversion lottery is held annually during the first quarter of the calendar year. Up to 200 units may be converted through the lottery each year.

Owners of buildings that qualify for conversion must submit a conversion application package and fee to the city after they qualify. During the processing of the application, the city inspects the property and provides a list of items that must be corrected before the conversion can take place. Buildings undergoing conversion do not have to meet current building codes but do need to meet other requirements (such as having common area utilities on their own meter). Unfortunately, these requirements cannot be found in any written codes or guidelines. But owners can consult various experts to get a good idea of what they'd face before the inspection report arrives.

The cost of conversion includes city fees and other professional fees. The totals are approximately $12,000 for 2-4 unit buildings and $20,000 for 5-6 unit buildings. These amounts do not include the cost of completing the work on the city inspection report. However, when you look at the appreciation immediately received, the investment can be well worth it.