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With so many different types of ownership in real estate, it can be difficult to know which type will best fit your needs as a property owner. To help you better understand each one, we’ve categorized the different types of ownership in real estate by who they usually fit best. Keep in mind that these are just suggestions, and your situation might call for something else.
For single individuals
Sole ownership: Sole ownership is one of the simplest types of ownership in real estate. Like the name implies, in sole ownership an individual is the only owner of a property, and they can sell, lease or give the property to another party without needing anyone’s permission. When a sole owner passes away, their property must go through probate, which means that it will be in limbo until the sole owner’s will is proven to be legally binding.
For married couples
Joint tenancy with rights of survivorship (JTWROS): Joint tenancy is the most common type of property ownership for married couples, where both parties share undivided ownership – they both have equal rights to use the property with equal liability and financial responsibility for the property. One owner may also sell or transfer the property without the permission of the other owner. “Rights of survivorship” means that when one owner dies, the other owner automatically inherits the property without the hassle of probate.
Tenants by the entirety (TBE): Another type of ownership in real estate for married couples is tenants by the entirety. Unlike JTWROS, this type of ownership is reserved only for married couples, and one owner may not sell or transfer the property without consent from the other owner. Like JTWROS, at one owner’s death, the property automatically goes to their spouse. In the case of divorce, the ownership type automatically shifts from TBE to tenants in common (TIC). TBE can also protect one spouse’s ownership interest in a property from the debt of their spouse. If a debtor gets a legal judgment to sell the property to pay the debts of one spouse, the spouse who isn’t responsible for the debt must be reimbursed for their ownership interest. TBE is not recognized in all U.S. states.
Community property: Community property law is only recognized in 10 U.S. states, and it classifies any property obtained by a spouse during marriage as being “community property” – that is, owned by both spouses, even if it’s technically only in the name of one spouse. This law makes any real estate obtained during marriage subject to sale by a debt collector to pay off a debt even if the debt is only in one spouse’s name.
For minors or adults with special needs
Owning trust: An owning trust is a type of real estate ownership that puts the responsibility for the care and management of a property in the hands of a trustee on behalf of a beneficiary. The beneficiary is typically a minor or an incapacitated adult. When a trust is created while the original owner (trustor or grantor) is still alive, it is referred to as a "living trust." The trustor puts the property in the name of the beneficiary, but acts as the trustee until their (the trustor’s) death. Upon their death, the property remains in the name of the beneficiary, but a new trustee is appointed (usually specified by the trust). This eliminates the need for probate when property is being passed to underage heirs, and the trust may exist indefinitely or end when specific conditions are met, like a child coming of age.
For multiple unrelated owners of a single property
Tenancy in common (TIC): With tenancy in common, each tenant holds an individual deed for a fraction or percentage of the property. For example, three unrelated people might each own one-third of a property, or one owner may own two-thirds and the other two may own one-sixth each. Each tenant has the right to full use of the property, but they do not have survivorship rights. If one tenant passes away, their share goes through probate and then is passed on to their heirs. Tenants-in-common may also sell or transfer their share of a property without the consent of the other tenants.
Owning partnership/LLC: An LLC allows multiple individuals to purchase ownership interest in a limited liability corporation (LLC), and the LLC then holds the deed to the real estate. Unlike other types of ownership in real estate, this form of ownership separates the personal finances of the LLC owners from the property owned by the LLC, adding an extra layer of privacy and protection for owners. Owners may sell their interest in the LLC without needing permission from other owners. LLCs can be either DIY or, like those offered by Pacaso, managed by a third party for a more seamless experience.
What’s right for you
Different types of ownership in real estate offer different benefits to owners. If you’re still not sure which type of real estate ownership is right for you and your situation, it’s a good idea to consult with a legal professional for additional guidance.