Joint Real Estate Property Ownership
Posted on February 6th, 2009
In today’s economy, it is a common practice for people to move into homes together to help with the expense. There are a few issues that we feel you need to be sure of understanding before you go ahead with this process. Because you are working out a financial statement with other tenants, it is wise to understand what may happen if someone else is unable to make their part of the payment. Without a doubt, the bank will immediately look to the other names that are on the loan, since they are considered to be liable for the debt also. Make sure that you have a legal agreement between yourself and any other tenant involved, so that you all understand and are protected if these situations do arise.
Typically there are two methods for holding a property with more than one owner:
1.) The case of Joint Tenants-
The most commonly used case of joint tenants is during a Marriage. Joint tenants hold the property shares of the property at an equal 50-50 ratio. If there were to be a death of one of the tenants, then the share will automatically pass over to the other tenant. If the property is a rental, any profits as well as losses must also be shared the same way. Most importantly, Joint Tenants aren’t able to sell off their share of the property without the permission of the other tenant. This clause helps to avoid many disputes about who owns what, or who can do what with the property.
2.) The case of Tenants in Common-
This case is different in a few ways; first off each tenant has an identifiable interest in the property. These shares can be unequal, so instead of 50-50, it can be 60-40, or some other percentage, depending on what is agreed upon. Unlike the case of Joint Tenants, with this case you can decide who will receive your share upon death by stating it in your will. Most importantly, make sure that your share of the property is protected no matter which proportions you designate yourself.
Which case is better?
The recommended choice would be Tenants in Common. Reasons for this are obvious, being that you will be able to have more control in a case of any dispute that may arise, or even in the case of divorce or death. Also, if all the parties don’t contribute equally to the property, then there is no sense in making it a 50-50 share. Instead, use the Tenants in Common and choose the shares be deciding who contributes more. In the end, no matter which you choose, it is important to know that you are able to change one holding over to the other if you decide to do so.
Tax Planning:
When looking into co-ownership, think twice before jumping into the situation. Keep in mind that the both of you will have to split the loss, no mater what the situation is for each of you. For instance, if there is one partner that happens to fall into a very high tax bracket, and the other does not, you still have to split any losses that you may have. This will cause you to not gain in the benefit of claiming the losses.
Help others find this article at:
Filed under Property investing advice, Real estate investing advice |
Leave a Reply
You must be logged in to post a comment.
