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11 Types Of Property Ownership
For most people, when they think about buying real estate, they think about how to acquire control over it and reap the rewards (if any) that come with it.
Little do most people think about what type of ownership should be used or how to hold property.
There are basically only 3 ways to own property.
- Individual ownership
- Joint ownership
- Title by contract ownership
If only things were that easy, and remain that easy, then we can forget about these headaches when investing in real estate.
The regular home owner usually own their homes by the basic methods of individual ownership in a person’s name, or joint tenancy where a couple becomes joint owners.
Such forms of property ownership is seldom used in real estate investments. Especially when real estate are held for the long term and when there are partners involved with each owning a stake in the asset.
Here is an overview of the different types of property ownership and the ways to hold real estate.
While individual ownership can appear to be as straight forward as one can imagine, alternatives can start to appear when one is exploring variations to individual ownership.
When the property is under a single person’s name, he is obviously the sole owner of the property.
This is also referred to as tenancy in severalty.
There are are no other beneficiaries or hidden owners in the background.
When this person dies, the property goes through the probate process so that family members would inherit it.
A sole proprietorship is basically a simple and basic business structure that is under one legal person.
While the rights to the property remains the same with individual person ownership, people can choose to use this way to hold property for reasons concerning business choices, accounting purposes, credit concerns, etc.
Company with single shareholder
This refers to a company limited by shares with one single shareholder.
It essentially means that one single person is in total control of a company.
Even though the simple conclusion is that a person owns a property when the property is owned by such a company, it is not legally correct to say that as a company is very different from an individual person.
The reason why someone might go with this method is usually to limit risks with limited liability and for tax purposes as a company might enjoy tax breaks, retain profits or gain access to grants.
When we mention joint ownership, we tend to think about joint tenancy. That’s usually true for regular home buyers.
But this is where the wild west comes into the picture as investors consider their options in holding the stake they hold on a property.
While we often associate joint tenancy between spouses for their family homes, it is totally possible for them to invest this way as well.
And it is also not impossible for two or more investors to go with joint tenancy as well.
However, this is rare in real estate investment as joint tenancy don’t allow for new entrants into the investment in future.
This implies that it would be quite a hassle for new investors to enter the fray.
This is why basic real estate investing activities between friends or family are often structured to be tenants in common ownership.
A variation of joint tenancy is the joint tenancy with rights of survivorship.
Tenants in common
This is an ownership structure that allows different percentage of ownership to different parties, unlike joint ownership where each partner has an equal share.
Owners can even legally sell their stake in an investment to someone else without requiring the approval of other owners.
This makes tenants in common the preferred way to own property in basic joint ventures.
An variation of this tenants in common with cross-contingent remainders.
Tenancy by the entirety
This is an ownership structure that is almost exclusively used by married couples.
It prevents one party from selling a house without the explicit permission from the other party.
Conveyance can only occur when there is expressed approval from both parties.
Community property is a form of ownership practiced in quite a few states.
It basically means that any property acquired during marriage by the husband or wife would be jointly owner by both parties with equal share.
And unlike joint tenancy, either party can choose to designate their share to a heir instead of having it go to the surviving owner by default.
A partnership is like a proprietorship with two or more partners.
This is a very common business structure for people to go into business together.
And when they buy real estate for the business, or in the name of the business, the ownership would be in line with how the partnership is structured.
This means that the property would be owned by the partnership, while the partnership is owned by a few partners who hold their own portion of shares in the entity.
Another variation is a limited partnership.
A limited liability company is still the preferred structure of joint ventures as they have limited liability and can be more flexible in business operations.
Tax reasons can also play a critical role in convincing partners to go with this ownership structure.
A drawback is that they require more funds to maintain and have more filings to do with the authorities.
Because the company would be the owner of property in this type of ownership arrangement, the transfer of ownership in the property can be as easy as the transfer of company shares.
Something that can be easily done in a day.
This actually gets more interesting when a corporation becomes a party in a joint tenancy or tenant in common.
This means that investors with less cash can actually pool up their funds and invest in a property using a company to be a party of a joint tenancy. It implies that each shareholder would hold a smaller stake than 50% in a joint tenancy consisting of two parties.
However, there are certain restrictions for corporations in such structures. So you should check with a real estate attorney to learn about the regulations governing such deals in the local area.
Title by contract ownership
This form of ownership refers to circumstances where a person or entity does not have direct ownership of a property, but is the beneficiary of a contract that controls it’s ownership.
The “owner” can either continue with this manner of indirect ownership or be it’s direct owner at a future point in time.
A life estate is an estate planning tool that grants the ownership of land for the duration of a specific person’s life.
Upon the death, ownership would revert back to the owner or to another person as stipulated in the estate.
A living trust is basically an entity created to manage the assets that has been entrusted to it according to the orders of the person who created it.
This is a way in which someone can legally ensure that assets are manages according to his or her wishes.
Real estate is a common asset found in trusts.
And beneficiaries can be given exclusive rights to the use of it.