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Ownership Interest and Owned Property: A Guide for Real Estate Investors

Here's what you need to know about ownership interest in real estate.

[Updated: Feb 04, 2021] Oct 10, 2020 by Tara Mastroeni
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Whenever you buy a piece of property or otherwise come into ownership of one, you are given what's known as an ownership interest in the property. In real estate, the term "ownership interest" refers to your rights as the property owner. In this case, within certain boundaries, you should be allowed to use the property as you see fit.

That said, there are many different nuances to property ownership. With that in mind, here is a guide to ownership interest and owned property. We'll explore what types of ownership are available to you when you purchase a home, what rights each form of ownership entails, and what you need to know about ownership before entering into a legally binding agreement.

What are the different types of property ownership?

To start, it's important to know that an ownership interest is typically the highest form of interest that it's possible to have in a property. However, ownership of a property comes in many different forms. To that end, we've laid them out for you below. Read them over to learn what type of ownership might be best for you.

Sole ownership

As the name suggests, sole ownership occurs when the full ownership of a real estate property belongs to a single individual. In this case, the biggest advantage of sole ownership is that decision-making is relatively easy. Here, the buck stops with one person. Therefore, decisions about the use and sale of the asset are left entirely to the owner and, unlike with other forms of ownership, no agreement needs to be reached.

However, the transfer of ownership can get more complicated with sole ownership, especially if there are multiple heirs involved. If there are multiple claims for entitlement to the property, the estate might need to go through probate, which can be costly and time-consuming.

Joint tenancy

Then, there is joint tenancy. Joint tenancy is generally considered to be the most common form of property ownership, especially among spouses. With this form of ownership, two or more individuals own equal shares of the property. They also have equal rights to the use of the property and any income resulting from the sale.

That said, the biggest drawback of having a joint tenancy is that an agreement needs to be reached between all the parties involved before a sale can occur. In addition, if one tenant has unpaid debts, the debtor is within their rights to force the sale of the asset for payment.

When considering a joint tenancy, it's absolutely crucial to understand how you would like the legal ownership of the property to be transferred if one of the owners passes away. In this case, it's common to see a joint tenancy combined with the right of sole survivorship. With sole survivorship, the surviving owner, usually a surviving spouse, is given an undivided interest in the property.

Tenancy in common

Next, there is tenancy in common. Like joint tenancy, a tenancy in common arrangement occurs when legal ownership of the property is split between two or more parties at the same time. However, the big difference between tenancy in common and joint tenancy is that, with a tenancy in common, each owner can have a different percentage of ownership in the property.

The other difference is that a tenancy in common does not come with the right of sole survivorship. In the event of an owner's passing, the tenancy is passed along to that person's heirs. The heirs then become a tenant in common along with the other surviving owners.

Tenancy by entirety

Tenancy by entirety, on the other hand, is a form of ownership that can only be entered into by spouses. With this form of ownership, both spouses enjoy joint ownership of the property as a single legal entity. However, as a result, in order to sell the property, both spouses must be in agreement. Notably, tenancy by entirety also comes with the right of sole survivorship.

The biggest difference between joint tenancy and tenancy by entirety is that tenancy by entirety can only be entered into by spouses. In addition, in the eyes of the law, spouses in a tenancy by entirety are viewed as a single legal entity.

Owning partnership (LLC)

While the forms of ownership listed above are for residential real estate, commercial real estate has its own forms of ownership. Here, an owning partnership allows investors to own property through a limited liability company, or LLC. By owning the property through a limited liability company, this form of ownership ensures that the investors' assets are protected in the event of a lawsuit.

In addition, there are also tax benefits to forming an LLC in order to take ownership of a property. Specifically, owning partnerships are granted pass-through taxation, which means that the investors will pay business taxes on their individual tax returns and the LLC itself does not get taxed.

Owning corporation

Like an LLC, corporations can also hold ownership of a property. Though they do so through a form of ownership called an "owning corporation." However, it's important to note that this form of ownership comes with liability. If, for example, someone sues the corporation, the asset can be seized and sold in order to pay off the debt.

Owning trust

With an owning trust, a trustee is designated to manage real estate assets. Notably, the trustee can either be an individual or an organization. Either way, the trustee generally works in concert with a trustor, or beneficiary of the trust.

Generally, there are two types of trusts that can be formed for real estate ownership. With an irrevocable trust, changes can only be made to the trust with the beneficiary's permission. In contrast, a revocable trust allows the trustee to make changes as they see fit. In addition, in this scenario, the beneficiary must pay tax on any income generated by the real estate.

What are your rights of use and disposition as a property owner?

Along with the transfer of legal title, the property owner in a real estate transaction is generally afforded certain rights with their ownership interest in the property. While the typical homeowner can expect to enjoy all of these rights, sometimes they can be broken up and assigned to different parties, as is often the case with investors.

In general, the rights that the legal owner of a property can expect to be afforded are:

  1. Right of procession: The right of possession simply states that the titleholder is the legal owner of the property.
  2. Right of control: The right of control says that the titleholder has the right to use the property in any way that is not outlawed by local law or a governing body such as a homeowners association or a condo board.
  3. Right of exclusion: The right of exclusion allows the titleholder to limit who may enter the property. But, again, there are limits to this one. For example, a warrant from the police would override the right of exclusion.
  4. Right of enjoyment: The right of enjoyment gives the titleholder the right to engage in any activities they find pleasurable while on the property. Again, though, this can be overruled by local law or a governing body.
  5. Right of disposition: The right of disposition is simply the right to sell the property whenever the titleholder sees fit. Here, it's important to note that this right is only fully realized once the homeowner owns the entire property outright and no longer has a mortgage.

How to transfer an ownership interest in a property

Transferring the ownership interest of a property is usually done through executing either a grant deed or a quitclaim deed. The exact document you use will be determined on a state level. With that in mind, if you're interested in transferring ownership, it's best to work with a local real estate attorney or title company who will know the process in your area.

However, in general, rather than signing over a quitclaim deed from one party to another, a new deed is typically issued and this document outlines the new ownership structure. Usually, this document will contain information about all parties involved in the transfer of ownership, the percentage of ownership being transferred, and the terms of the transfer.

Additionally, if there is more than one party involved on either side of the transaction, it's important to note that all parties need to sign the new deed in order for it to be considered legally binding.

The bottom line

All that said, in real estate, defining ownership interest in a property can be confusing. After all, there are a lot of terms to learn and quite a few different regulations to follow, depending on where your particular property is located. With that in mind, if you have specific questions regarding ownership interest, it's best to speak to a real estate professional in your area. They can review the specifics of your situation to give you accurate insights.

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