Types of real property ownership and how to differentiate them

Determining real estate property ownership matters for a plethora of reasons – each type of real estate property ownership has its benefits, its drawbacks, and essentially, understanding them well before investing in a particular asset might help you make an educated decision.

When you want to determine the ownership of a particular real estate asset, this is done through a title.

What is a title exactly?

In this article, I will review different types of property ownership as well as the most common ways to hold a title and outline the advantages and drawbacks of each of them, helping you make a decision that will meet your needs best.

Handshake in front of a house

Types of property ownership in commercial real estate

The sanest advice you will get before purchasing an asset is to consult with an expert in the field, such as myself, before doing so.

Due to varying laws, especially depending on the location and the country you are keen on investing in, different types of ownership in real estate are preferential, and here are the most common types:

●  Sole ownership

●  Joint tenancy

●  Tenancy in common

●  Tenancy in common vs. joint tenancy

●  Tenants by entirety

●  Owning partnership (L.L.C.)

●  Owning corporation

●  Owning trust

Before I explain the details of each of these types of ownership in real estate, let us go through the basics first.

What is a title in real estate ownership?

Titles are issued to depict ownership, which can be personal or real. In this case, we are interested in real property. Real property refers to anything tangible such as real estate. When a certain asset is sold, it is also very important to transfer the title too, which must be freed of anything that could threaten the ownership.

Like I said in the beginning, each title has its advantages and disadvantages, depending on a particular situation. I already enlisted what types of real estate ownerships are there, and here is a full breakdown.

Sole ownership of real estate – one person calls the shots

Sole ownership means that the full possession of an asset belongs to a single person, and it’s a type of ownership most commonly used for multifamily rentals and smaller rental properties, duplexes, triplexes, and land.

The biggest advantage of sole ownership is that all the major decisions regarding the property are made by the owner, and are not dependent on the tenants or any other parties. However, a major downside of sole ownership becomes obvious in the moment of title transferring – for this to happen, the owner’s beneficiaries need to probate their estate, which is a time-consuming, in addition to being a costly process.

Joint tenancy – the most common type of property ownership

Joint tenancy is one of the most common forms of property ownership. It is based on equal shares of property between two, three, or more tenants. In this situation, tenants are entitled to equal rights, income, and general use of the property, not to mention they can benefit from sharing tax payments or mortgage.

Probably the most important aspect of joint tenancy is the right of survivorship, meaning that if one of the multiple tenants dies, the ownership is transferred to the surviving tenant. However, joint tenancies bring a certain element of risk, meaning that if any of the tenants have debts, they can all succumb to a forced sale of assets.

Apart from that, joint tenancy also brings along tax consequences and liability for property maintenance and repair costs. If it comes to selling the property, all tenants must come to an agreement for it to happen.

Tenancy in common – one of the very popular types of ownership in real estate

Tenancy in common means that the property is owned by two or more persons at the same time. This is another very popular type of real estate ownership. The main difference between joint tenancy and tenancy in common is that the latter doesn’t provide equal rights regarding use, income, or rights.

Besides that, survivorship rights are also not included under tenancy in common, which means that in the event of death, the share of the decedent is acquired by his heirs, who then enter the agreement with other surviving tenants.

Deed of title document

Tenants by entirety – an equal share between parties involved

This is a type of ownership that refers to a situation where the husband and wife own equal shares of a certain property, along with all the property it generates. Much like joint tenancy type of ownership, it also holds a huge advantage of survivorship rights, meaning that the title is transferred to the remaining spouse in its entirety.

All of the above also means that if the couple divorces, they automatically become tenants in common.

When it comes to flaws of this type of ownership, the greatest one is that – in the event of the property sale, both parties need to agree to sell. In some way, this can be regarded as an advantage too, since neither party can sell without the consent of the other, which makes the property protected from an unauthorized sale.

Owning partnership (LLC) – one of the business types of property ownership

Owning partnership, also known as LLC (Limited Liability Company), is a way to hold a commercial real estate property. The advantage of owning a partnership is that it provides its members with limited liability, as well as tax benefits.

Limited liability means that in the event of injury or any kind of work accident, the LLC will protect the owners and their assets in the case of a lawsuit. On the other hand, tax benefits mean that the LLC members pay the business taxes through their personal tax returns, while the LLC itself pays no taxes at all.

Owning corporation type of ownership

Corporations can very well hold title over a real estate asset, but since they are treated as separate legal entities, they can also be sued if, for example, somebody suffers an injury on the premises.

The biggest flaw of this type of ownership is liability. In case anything happens and the asset is acquired and sold, this is making the asset owners very vulnerable to policy limits, even though the risks can be mitigated.

Owning trust – unique method among different types of property ownership

Owning trust is a unique scenario when real estate is owned by a trust and managed by a trustee, on behalf of the beneficiaries to the trust. The role of a trustee can be assigned to either an individual, or an organization, and in the event of the death of a trustee, their interest is passed on to the beneficiaries.

I should also note there are two types of trusts irrevocable and revocable trust. The irrevocable type of trust can only be modified or terminated with the permission issued by the beneficiary, since the trustee has waived all control.

A revocable trust, on the other hand, still allows the grantor of the trust to make changes to it, but he/she must also pay tax on the income generated by the property.

What are the benefits of owning a property through a trust?

Well, the primary one is that the owners of a commercial property can remain anonymous, meaning that their actual personal ownership is not recorded in public real estate records, allowing them to avoid litigation. But, this doesn’t mean they can stay private forever – the court has sufficient power to unearth property owners’ identities, especially if there is a doubt of criminal activity.

Mortgage bond and money

How to choose among listed types of property ownership?

Before making a decision and trying to determine the best method for owning a real estate property in your case, you should know that these titles are determined by state law, which is why it is advisable to conduct thorough research and find out the differences between methods.

As you’ve gathered by now, there are several types of property ownership, each having their unique advantages and flaws, imploring you to inform yourself thoroughly about all practical implications of each method, before you make a choice.

In the case of opting for sole or joint ownership over a certain asset, the owners should determine how their title can be transferred in the event of death or sale, before selecting one method over the other.

If you are keen on opting for real estate ownership through some of the business entities, such as trust, corporation or partnership, it is advisable to speak to a professional in the field.



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