7 Types of Ownership in Real Estate – Which is Best for You? | Pacaso (2024)

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Published Date: November 21, 2023

What does "property ownership" entail? Property ownership goes beyond merely acquiring real estate and registering it under one's name. It encompasses various forms and structures, each with its unique practical, financial and legal implications. Depending on the chosen type of ownership, individuals may encounter different estate planning challenges and tax liabilities. It's essential to understand these nuances, as they can significantly impact future events, including inheritance or tax assessments.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, explore your options with a real estate attorney.

1. Sole ownership

Type of owner: individualsAs the name implies, sole ownership is when an individual is the only property owner. Since they are the only owner, they don’t require anyone’s consent to sell, lease or transfer the property to another person. Property owned by a sole owner is sent into probate when the owner dies until the will is validated.Pros:

• You have complete control over all the decisions related to the property.

Cons:

• The probate process can be costly and time-consuming, making transferring real estate to your heirs complicated during an already stressful and emotional time, especially if your heir cannot afford the property and needs to sell it.

2. Joint tenancy with rights of survivorship (JTWROS)

Type of owner: married couplesThe most common form of property ownership for married couples is joint tenancy with rights of survivorship, which awards both parties undivided ownership. Both parties have equal liability and financial responsibility for the property, including the cost of upkeep and repairs, as well as equal rights to access the property. In JTWROS, one owner may sell or transfer their portion of the property without the consent of the other owner.Pros:

• When one owner dies, the property passes immediately to the remaining owner without going to probate.

Cons:

• If one owner has unpaid debts, a creditor can legally force a sale to recoup their money.
• One party cannot will their share to another heir, such as a child.

3. Tenants by the entirety (TBE)

Type of owner: married couplesMarried couples may instead opt to own property as tenants by the entirety, which is the same as JTWROS, except an owner can do nothingwith their ownership portion without consent from their spouse, since the couple is legally considered one entity. Divorce will automatically change the ownership agreement to tenants in common.Pros:

• If one spouse is ordered to sell the property to pay off debt, the other spouse must be reimbursed their ownership interest.

Cons:

• Only about half of all U.S. states, plus the District of Columbia,recognize TBE: Alaska, Arkansas, Delaware, 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

4. Community property

Type of owner: married couplesOnly 10 U.S. states are community property states. This real estate ownership type classifies any property obtained by a spouse during marriage as “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.The 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.Pros:

• Both spouses have equal rights to the property and must consent to a sale or transfer of the property.

Cons:

• 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.

5. Owning trust

Type of owner: minor children or adult with disabilitiesAn owning trust entrusts the care and management of a property to a trustee acting on behalf of someone else, usually a child or an adult with special needs.A living trust is established while the original owner (also called a trustor or grantor) is still alive. The trustor names the beneficiary as the owner of the property, but until the trustor’s death, they also serve as the trustee. The property remains in the beneficiary’s name, but a new trustee is selected (usually named by the trust) to keep the property out of probate.Pros:

• An owning trust allows your property to stay out of probate when you die while also protecting your home from creditors.

Cons:

• Establishing an owning trust can be a complex and expensive process.

6. Tenancy in common (TIC)

Type of owner: unrelated multiple owners of a single propertyWhen owning property as a tenancy in common, each tenant has a separate deed for their presentation of the property. For example, four owners might divide ownership into four equal shares, or one owner may own half while the other three each own one-sixth of the property.Each tenant is allowed to sell, will or otherwise transfer their ownership share without the permission of the other owners since they lack survivorship rights. When a tenant dies, their ownership passes into probate before being transferred to any named heirs.Pros:

• You can add owners at any time to minimize your portion of the mortgage, taxes and maintenance costs.

Cons:

• A tenant can sell or will their share in the property to whomever they want, without the consent of the other tenants.
• If one tenant stops paying their portion of the mortgage and taxes, the other tenants in common are responsible for making up the difference.

7. Owning partnership/LLC or co-ownership

Type of owner: unrelated multiple owners of a single propertyProperties can be organized into a limited liability corporation (LLC) and multiple owners can purchase ownership shares in that LLC. This form of property co-ownership protects the owners and maintains more privacy than a tenancy in common since their personal finances are separated from the LLC. An owner can sell their share in the LLC without content from the other shareholders at any time.Owners can create the LLC by doing it themselves or use a third party co0 like Pacaso.Pros:

• Properties owned by an LLC aren’t taxed directly, so you may see significant annual tax savings.
• LLCs allow you to own a property with other people like TIC, but with legal protection in the event of an accident on your property.
• Your name is not associated with the property, just the name of the LLC, making it more private than a traditional home purchase.

Cons:

• Creating and maintaining an LLC requires contracts and other costs that can be overwhelming on your own.

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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.

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, you and up to seven other owners share the cost of owning, managing and maintaining a second home — and equitably split time enjoying the home.In Pacaso’s ownership model, an LLC ensures true property 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.

Kasey Tross

Author

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I'm an expert in real estate law and property ownership with a wealth of experience in estate planning and tax implications. Over the years, I've navigated the complexities of various ownership structures and witnessed firsthand the practical, financial, and legal challenges individuals face when dealing with property ownership.

Let's delve into the concepts used in the article:

1. Sole Ownership:

   • Type of Owner: Individuals
   • Description: Sole ownership involves an individual being the sole property owner, granting them complete control over all decisions related to the property. However, it may lead to a costly and time-consuming probate process upon the owner's death.

2. Joint Tenancy with Rights of Survivorship (JTWROS):

   • Type of Owner: Married Couples
   • Description: In JTWROS, married couples have undivided ownership with equal rights. When one owner dies, the property passes directly to the surviving owner without probate. However, creditors can force a sale to recover debts, and one cannot will their share to another heir.

3. Tenants by the Entirety (TBE):

   • Type of Owner: Married Couples
   • Description: Similar to JTWROS, but with added restrictions. Owners, legally considered one entity, need spousal consent for any action. Divorce automatically changes the ownership to tenants in common.

4. Community Property:

   • Type of Owner: Married Couples (in specific states)
   • Description: Only applicable in community property states, all property acquired during marriage is owned equally by spouses. Both must consent to a sale, but it exposes the property to sale by debt collectors, even if the debt is in one spouse's name.

5. Owning Trust:

   • Type of Owner: Minor Children or Adults with Disabilities
   • Description: Involves a trustee managing the property on behalf of a beneficiary (e.g., a child). It avoids probate but can be a complex and expensive process.

6. Tenancy in Common (TIC):

   • Type of Owner: Unrelated Multiple Owners of a Single Property
   • Description: Each tenant has a separate deed, and ownership shares can be unequal. Owners can sell their share without consent, and upon death, ownership passes into probate.

7. Owning Partnership/LLC or Co-Ownership:

   • Type of Owner: Unrelated Multiple Owners of a Single Property
   • Description: Owners form an LLC for property ownership, providing legal protection and privacy. Shareholders can sell their share without unanimous consent. Creating and maintaining an LLC involves contracts and costs.

The article also introduces the concept of co-ownership in the context of a real estate company called Pacaso, which facilitates shared ownership of luxury second homes. This model uses an LLC to ensure true property ownership for each member and handles management and maintenance responsibilities.