7 types of ownership in real estate: Which is best for you?
Published Date: February 1, 2023
When you decide to buy real estate, you may not realize there are many different property ownership types. It’s not always as simple as buying a property and putting your name on it. 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. The type you choose has practical implications, but it can also be an important decision in regard to estate planning and tax liability.To help you better understand each ownership path, we’ve categorized the different types by who they usually fit best. Keep in mind that these are just suggestions, and your situation might call for something else. If you’re unsure which property type will work best, you can explore your options with your real estate attorney.
For single individuals
Real estate ownership for individual owners is pretty straightforward — assuming there’s a single owner with full ownership of a property.
Sole ownership is one of the simplest types of ownership in real estate. As the name implies, sole ownership is when 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. The main benefit of sole ownership is simple: You have control of all of the decisions related to the property. The drawbacks are the costly and time-consuming probate process to transfer your real estate to heirs after your death.
For married couples
Married couples buying property together have a few options to choose from in terms of real estate ownership type.
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, including maintenance and repairs. In JTWROS, one owner may sell or transfer their share of the property without the other owner's permission. “Rights of survivorship” means that when one owner dies, the other owner automatically inherits the property without the hassle of probate.The easy transfer to the surviving owner is one of the key benefits of being joint tenants. However, one key drawback is that if one owner has unpaid debts, a creditor can legally force a sale to recoup their money.
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, as it treats the couple as a single entity. In TBE, one owner may not sell or transfer the property without consent from the other owner. Like JTWROS, the property automatically goes to the pouse if one owner passes away. In the case of divorce, the ownership type automatically shifts from TBE to tenants in common (TIC).One upside of this property ownership type is that TBE can also protect one spouse’s ownership interest in a property from their spouse's debt. 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.It’s important to know that TBE is only recognized in about half of all U.S. states. TBE is available to property owners in Alaska, Arkansas, Delaware, Washington D.C., Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia and Wyoming.
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 the property is only listed in the name of one spouse. This includes all real estate purchases made during the marriage. These states that recognize community property include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, residents can opt in to a community property agreement. The same community property laws apply to registered domestic partnerships in California, Nevada and Washington.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
There are cases where minors become owners of real estate. This could be in the case of inheritance or simply tax and estate planning. The same ownership type that applies to minors is available to adults with special needs.
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 the 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
Instead of owning an entire property, multiple people can share property ownership. There are a few ways co-ownership can be arranged.
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 rights to the property in accordance with their ownership share, but they do not have survivorship rights. That means 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.
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 — who in some cases may not even know each other. Individual owners may sell their interest in the LLC without needing permission from other owners. LLCs can be either do-it-yourself or managed by a third party like Pacaso for a more seamless experience.
What’s right for you
Different types of ownership in real estate can 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 a legal professional for additional guidance.
How to become a co-owner of a second home
Pacaso makes it possible for individuals to become co-owners of a luxury second home in vacation destinations across the United States and beyond. Instead of being responsible for the entire property, up to eight owners share the cost of owning, managing and maintaining a second home — and equally split time spent enjoying the home.In Pacaso’s fractional ownership model, an LLC model is set up, ensuring true asset ownership for each member. Unlike a timeshare when you only pay for time to use a property, Pacaso ensures you enjoy the many benefits of second home ownership without the high cost or headaches. Plus, Pacaso takes care of all of the management and maintenance, so you can just arrive and enjoy.