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5 Types of Real Estate Ownership and Their Pros and Cons

Owning property isn’t as simple as buying a piece of land. There are different kinds of real estate ownership, and each has its own advantages and disadvantages. Read on to find out what they are.
Owning property isn’t as simple as buying a piece of land. There are different kinds of real estate ownership, and each has its own advantages and disadvantages. Read on to find out what they are.

There are many different ways to own property. The law has provisions for people to own property by themselves, in groups, or share it with a spouse. These regulations can vary from state to state.

It’s important for anyone who owns property to know in which capacity they possess it and the legal procedures involved in transferring ownership.

Working with a local agent will ensure that your rights and interests are protected.

To get you started on understanding what your options are, here’s what you need to know about the different types of real estate ownership.

Sole Ownership

In this form of real estate ownership, one person owns all of the interest in an asset. The way the sale happens is simple. The former owner either signs off on documents to confirm the sale or the transfer happens based on local succession rules when the homeowner passes away.

Pros

The owner has complete control over the property. It’s easy to transfer the title to a new home buyer since the original owner doesn’t need to consult anybody else.

Cons

Things can get a little complicated legally if the owner of a solely owned property dies. This usually kicks off a probate process and the next of kin claiming the asset will have to go through a legal process for acquiring it. For that reason, it’s important that sole owners write a will naming the beneficiaries of the property.

Community Property

Washington, Nevada, New Mexico, California, Louisiana, Idaho, Arizona, Wisconsin, Texas, and Alaska are the 10 states that recognize community property. This kind of real estate ownership dictates what happens to assets that are acquired during a marriage.

Spouses get equal ownership of any income or assets that they receive after getting married. As a result, each spouse can independently decide what to do with their share of the assets, including property, in the case of death. Neither party is obligated to leave the property to the surviving spouse.

Pros

There are tax advantages to owning community property as opposed to owning it independently. The basis of the property gets readjusted when one of the spouses dies to the value of the property at their passing. This means that the capital gains tax that needs to be paid on the property is less.

Cons

All assets you acquire during a marriage are considered community property. Separating from a spouse doesn’t change this status. The only way to stop sharing ownership of assets is through a finalized divorce.

Joint Tenancy

When two or more people have an equal stake in a piece of real estate, it is known as a joint tenancy. Any group of two or more people can enter a joint tenancy; you aren’t limited to your spouse or family members. However, those who do own property jointly with a spouse have the advantage of it passing to the surviving member of the couple with no tax ramifications if one of them passes away.

A conventional will does not apply when trying to transfer the ownership of a joint tenancy property. If one of the owners dies (and they’re not married), then their estate includes the full property’s value — not just the part that they owned. The property needs to go through the probate process so that the other owners can once again have a right to the property.

Pros

Anyone can enter a joint tenancy with another person whether or not they are married or related.

Cons

All decisions regarding using the property for financial gain needs to be taken through a consensus between all the owners.

You cannot use a will to transfer the property to someone else in case of a joint tenancy.

Tenancy in Common

A tenancy in common is like joint tenancy, except that all owners don’t need to own an equal portion of the property. They can instead apportion the property to each of the owners in different percentages.

If one of the owners passes away, then their part of the property doesn’t automatically transfer to the other owners. It needs to go through a probate process in order for someone to claim that part of the asset.

Pros

Tenants in common can transfer the property to another property through traditional means like a will.

An owner can use their section of the property to generate revenues and use it as collateral for a loan. Because of that, creditors can also place a lien on just one part of a Tenancy in Common property.

Cons

If there is a lien on any one piece of the property, then it cannot be transferred. The lien needs to be cleared before a complete change in ownership.

Tenants by Entirety

This is a form of ownership that allows couples to own property together. Both spouses need to sign off on any modifications made to the interests in the property.

The spouses who own property as tenants by entirety are seen as one legal entity. If one spouse happens to die, then ownership automatically passes to the other. This transfer of ownership can override a will naming some other heir to the property.

Pros

The property is transferred to the surviving spouse without any complicated legal procedures.

Cons

The property can be transferred only through a consensus between spouses involved in a tenancy by entirety. If they happen to divorce, then it becomes a tenancy in common.

It’s essential to know the exact mechanics and legal ramifications of types of ownership before buying or selling real estate in any form. An experienced buyer’s agent will guide you to choose the right property ownership for you.

Clever Partner Agents are experienced real estate agents who are familiar with the laws around property ownership in their cities. Working with a Partner Agent gives you the ability to make informed decisions when buying property either on your own or with partners.

Contact Clever to connect with a Clever Partner Agent who can help you with all your questions regarding the different forms of property ownership.

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Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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