In the U.S. alone, over 60% of Americans are real estate owners, with each of them having opted for different types of ownership. With so many options available, it can be difficult to know which one is best suited for your needs.
There are many different types of real estate ownership, and it can be confusing to figure out which one is right for you.
This guide will help you understand the most common types of ownership so that you can make an informed decision about what is best for your needs. We'll discuss everything from co-ops to condos to leaseholds and more!
So whether you're a first-time homebuyer or just curious about your options, read on for a comprehensive guide to real estate ownership types.
How Does Real Estate Ownership Differ Throughout the Centuries?
Throughout history, the laws governing real estate ownership have changed drastically.
In the 19th century, for example, land was typically held in fee simple estates. That's an arrangement that gave the owner full rights to a piece of property without any conditions or limitations. But by the 21st century, different types of real estate ownership had become more common.
Furthermore, the legal structures of real estate ownership differ depending on which country you are in.
For example, the U.S. has a different set of laws and regulations than what is found in the United Kingdom or Europe. It's important to understand the particular nuances of each country's laws. This is done before making any decisions regarding real estate ownership.
Let's examine the common types of real estate ownership.
Real Estate Ownership Types: LLC/Owning Partnership
LLC (Limited Liability Company) or owning partnership is one of the most popular forms of real estate ownership. Under this type of structure, two or more partners form a business entity with the purpose of owning and managing real estate investments.
The owners of the LLC are not personally liable for any liabilities against the company. For instance, debt, legal judgments, and other liabilities arising from their actions within the company.
This provides a certain degree of asset protection to each partner in case something goes wrong with a real estate investment.
A major benefit of LLC/owning partnerships is that it allows the owners to divide labor and expenses. This is done amongst themselves according to their individual resources and skill sets. For example, one partner can serve as the manager of the LLC while another partner can handle the financial affairs of the business.
Tenancy In Common
Tenancy in common, or TIC, is another popular type of real estate ownership. In this arrangement, two or more people own undivided interests in the same property.
The owners can manage their individual interests however they see fit. They can live together on the property, rent it out to tenants, or even sell their shares without consulting the other co-owners.
The difference of tenancy in common and LLC/owning partnerships is that each tenant has a distinct interest in the property. With LLCs, all members share an equal stake in the company.
This means tenants may have certain disputes regarding who gets what portion of the profits from renting or selling the property.
An owning trust is a type of real estate ownership in which an owner places one or more properties into a trust.
The trustee – usually the owner – has complete control over the property within the trust but cannot personally benefit from it. Instead, any money generated from the trust must be used to benefit the trust's beneficiaries according to its terms.
Owning trusts can provide certain tax advantages to owners.
For example, if an owner puts multiple pieces of property into a single trust and then sells off some of them down the line, they may be able to reduce their capital gains taxes due to the fact that only one sale was made.
Community property is a type of real estate ownership that is specific to certain states in America. Under this arrangement, two spouses own equal shares of any property.
This means that if one spouse were to pass away, the surviving spouse would be entitled to all the property owned by both partners.
It's important to note that community property only exists in some states.
It's only recognized in some jurisdictions (mainly those with strong civil law systems).
Furthermore, even if it is recognized, there are still nuances between each individual state's laws. This is true when regarding community property.
Tenants by the Entirety
Tenants by the entirety is a type of real estate ownership specifically for married couples.
Under this arrangement, each spouse owns an undivided interest in the property. Still, if one spouse passes away their share goes directly to the surviving spouse.
This is rather than being distributed among heirs or other beneficiaries. This provides more protection against creditors and other legal claims against either partner.
It's important to note that tenants by the entirety is only recognized in some jurisdictions. It's not available in all states. Be sure to check your local laws before setting up this type of ownership structure.
Joint Tenancy With Rights of Survivorship
Joint tenancy with rights of survivorship is another type of real estate ownership applicable to married couples. Like tenants by the entirety, each partner owns an undivided interest in the property, and if one spouse passes away, their share goes directly to the surviving spouse.
However, unlike tenants by the entirety, creditors can still reach either partner's share of the joint tenancy as long as they file a claim before one partner dies.
Also, unlike tenants by the entirety, joint tenancy with rights of survivorship is recognized in all states.
However, it's important to note that married couples can only use it – unmarried couples must use a different type of ownership structure.
Sole ownership is the most common type of real estate ownership. Under this arrangement, one individual owns an undivided interest in a property and has complete control over it.
This can provide certain advantages when it comes to taxes and decision-making. However, there are some drawbacks as well.
For example, suppose the owner passes away without leaving any heirs or beneficiaries to inherit their share of the property.
In that case, it may be sold off by the state to cover outstanding debts or taxes due on the property. Furthermore, creditors can still reach any assets owned by that individual, even if they're held within a sole ownership structure.
How to Properly Research the Right Ownership Type for Your Needs?
The key to finding the right type of ownership for your needs is to research all the available options thoroughly.
While we gave an overview of the different types of real estate ownership, it's important to understand how each one works in detail.
You must consult with a qualified accountant who can provide specifics about the ownership structure. They may show which one may be best for your individual situation.
With their help, you'll be able to make an informed decision and enjoy the peace of mind. It comes with knowing you have chosen the right type of ownership for your needs.
Furthermore, it would help if you also talked to a real estate agent or broker who can help you determine the best way to structure your ownership.
They can provide valuable insight into the local market. They can help guide you through the process of setting up the right type of ownership for your situation.
Some important criteria to consider are whether the ownership structure needs to be in place for a limited duration. You need to know if it needs to protect from creditors or legal claims and how much control each partner will have over the property.
By taking all these factors into account and doing your research, you'll be able to find the best type of real estate ownership for your needs.
Real Estate Ownership Made Easy
No matter which of the real estate ownership types suits your needs, it's important to understand the laws and regulations. These apply in your jurisdiction and have their own ownership structure.
To help you make an informed decision, be sure to consult a qualified real estate attorney. This is done before signing any documents or making any commitments.
With the right information and guidance, owning real estate can be a rewarding experience for individuals and couples. Get in touch for more resources about the various types of real estate ownership.