Types of ownership in real estate

PublishedOct 25, 2024|Time to read min

Quick insights

There are several real estate ownership types including but not limited to sole ownership, joint tenancy, tenancy in common, community property and trust ownership.
Each ownership structure comes with pros and cons. For instance, sole ownership offers complete control and simplicity in decision-making but involves full liability. Joint tenancy provides a right of survivorship which simplifies inheritance but can complicate individual estate planning.
When choosing an ownership type, consider legal and financial implications. Key factors to consider are management responsibilities, liability, tax implications and the process of transferring property rights.

Owning real estate is a goal for many individuals, whether it’s tied to the satisfaction of owning your home or investing in a property. If owning real estate is something you’re interested in, it may be helpful to familiarize yourself with the various types of ownership that may be available to you:

Sole ownership
Tenancy in common
Community property
Trust ownership
Condominium ownership
Cooperative ownership
Tenancy by the entirety

To better understand these types of ownership in real estate, let’s take a closer look at how they work, as well as their unique pros and cons.

1. Sole ownership

Sole ownership is one of the more common types of ownership in real estate. It's when a single individual or entity holds the legal title for a property, giving the owner the right to sell, lease or modify it as desired.

Pros of sole ownership

Complete control: As the sole owner, you have the authority to make decisions about the property without requiring consent from other parties.
Easy to manage: With no other owners involved, managing the property may be simpler and more straightforward.
Flexibility: Easy to sell, lease or transfer the property.

Cons of sole ownership

Fully liable: The sole owner is responsible for any liabilities associated with the property, such as mortgages, taxes and maintenance costs.
Probate process: Upon the owner’s death, the property may need to go through probate, which can be time consuming and costly.
Lack of shared financial risk: Unlike joint ownership, where multiple parties share the financial risk, sole owners are solely responsible for any financial risks associated with the property.

2. Joint tenancy

Joint tenancy is where two or more people hold the real estate titles to a property. In this scenario, each owner holds an equal interest in the property, as well as the right of survivorship. This means if one of the owners dies, their share of the property automatically transfers to any surviving owners.

Pros of joint tenancy

Right of survivorship: This feature may simplify the process when an owner dies as the property doesn’t have to go through probate. Thanks to the right of survivorship, any surviving owners automatically inherit the deceased owner's share.
Equal ownership: All joint tenants possess equal shares of the property, regardless of their individual contribution to the purchase price.
Shared responsibility: All responsibilities, costs and benefits associated with ownership of the property are shared equally.

Cons of joint tenancy

Lack of control: Joint tenancy may leave room for disputes and delays.
Potential for forced sale: If one tenant decides they want to sell their share, they may be able to force the sale of the property with a partition lawsuit.
Inflexible estate planning: The right of survivorship may complicate estate planning as a joint tenant cannot pass on their share of the property through a will or trust. Their share automatically goes to the surviving joint tenants upon their death.

Tenancy in common

Tenancy in common is a type of ownership where multiple individuals each own a specific undivided interest in the same property. Unlike joint tenancy, the shares don't have to be equal, and there’s no right of survivorship. This means each owner may transfer their share to others during their lifetime or upon their death.

Pros of tenancy in common

Flexible ownership: The ownership of the property owned by each tenant can vary, making it an ideal arrangement for parties who desire or need to contribute different amounts towards the purchase.
Individual decision making: Every owner can sell, lease or will their property independently without consent from the others.
Estate planning flexibility: Since there is no right of survivorship in a tenancy in common, owners have the option of leaving their share of the property to anyone they wish.

Cons of tenancy in common

Potential disputes: Because each owner is able to act independently, disagreements may arise over the use, maintenance or sale of the property.
Unequal responsibilities: If one owner is either unable or unwilling to contribute to the expenses associated with ownership of a property, the financial burden may fall on the other owners.
Probate process: When an owner dies, their share of the property doesn’t automatically pass to the surviving owners. Instead, it becomes part of their estate, which could lead to a lengthy and costly probate process and conflicts.

3. Community property

Community property is a type of property ownership that applies to married couples in certain states. Under this system, any property purchased while the couple is married is considered jointly owned, regardless of who paid for it. In this scenario, each spouse has equal ownership and control over the property.

Pros of community property

Equal ownership: With community property, both spouses have an equal opinion in any ownership-related decisions, which could promote fairness in the marriage.
Step-up in basis: If one spouse dies, the surviving spouse may receive a "step-up in basis" for tax purposes on the entire property, not just half of it. This could reduce capital gains tax if the property is sold. Please consult with a tax professional.
Creditor protection: In some community property states, creditors of one spouse cannot go after the community property unless the debt was incurred for the couple’s benefit.

Cons of community property

Lack of control: A spouse cannot sell or transfer the property without consent, as both spouses have equal control.
State restrictions: Community property is only recognized in certain states.
Divorce complications: In the event of a divorce, dividing community property may be complicated or even contentious, especially if one spouse contributed more finances to the purchase than the other.

4. Trust ownership

Trust ownership is when a property is held in a trust, which is a legal arrangement where the owner transfers the property to a trustee, who holds and manages it for a third party, known as the beneficiary.

Pros of trust ownership

Avoiding probate: One of the major advantages of a trust is that it allows the property to avoid the probate process upon the death of the trustor, which can save both time and legal expenses.
Privacy: Unlike wills, which become public record once they go through probate, trusts offer privacy as the details of the trust remain confidential.
Control: The trustor can set specific terms for how they want the property to be managed or distributed, providing a level of control even after death.
Potential tax benefits: Depending on the type of trust, there may be potential tax benefits or protections from creditors. Please consult with a tax professional.

Cons of trust ownership

Cost and complexity: Setting up a trust can occasionally be complex and generally requires the service of an attorney, which may become costly.
Irrevocability: Some trusts, once established, cannot be changed or revoked without the explicit consent of the beneficiary.
Management: With trust ownership, the trustee is obligated to manage the property according to the terms of the trust, which may be a significant responsibility.
Potential for conflict: If the trust has multiple beneficiaries, conflicts could arise over the use or management of the property.

5. Condominium ownership

Condominium ownership is when an individual owns a specific unit within a larger building, along with a portion of the common areas, such as hallways, amenities and the land where the building sits. This form of ownership is generally associated with apartment-style residential buildings. Condo projects must be approved by financial institutions prior to getting a loan.

Pros of condominium ownership

Affordability: Condos are often more affordable than single-family homes, making them a popular choice for first-time homebuyers or buyers with conservative budgets.
Low maintenance: The condominium association typically handles maintenance of the common areas and exterior of the building.
Amenities: Many condominiums offer amenities like gyms, pools, theaters and security systems that might be expensive for a single-family home.

Cons of condominium ownership

Condo association fees: Condo owners are typically required to pay monthly or annual fees to their condo association. These fees help pay for the maintenance and upkeep of the common areas and other amenities.
Lack of privacy: Living close to your neighbors might mean less privacy than a detached single-family home.
Potential for special assessments: If a repair or improvement is needed, the condo association may require a special assessment, which can be a significant and unexpected expense.
Resale challenges: Depending on market conditions, condos may be harder to sell than single-family homes and tend to appreciate in value more slowly.

6. Cooperative ownership

This is a form of property ownership where you don't actually own your specific unit. Instead, you own shares in a corporation that owns the whole building. In this scenario, you’re leasing your unit from the corporation. Co-ops must be approved by a financial institution prior to getting a loan.

Pros of cooperative ownership

Affordability: Co-ops may be more affordable than condos or single-family homes in the same area.
Tax benefits: Since you're buying shares in a corporation rather than real estate, you may be able to deduct your share of the building's mortgage interest and property taxes when tax season comes around. Please consult with a tax professional.
Community control: Co-op residents typically have more say in how the building is run as they're shareholders in the corporation that owns it.

Cons of cooperative ownership

Sale challenges: Selling a co-op may be more challenging than selling a condo or single-family home. This is because potential buyers must be approved by the co-op board, which may limit the pool of eligible buyers.
Lack of autonomy: As a shareholder, you'll need to follow any rules and regulations set by the co-op's board, which may be more stringent than those of a condo building.
Potential for higher monthly fees: While the initial purchase price may be lower, co-op owners may face higher monthly maintenance fees because they include a portion of the building's mortgage.
Financial risk: If any co-op members fail to pay their portion of expenses, the remaining members may be left covering the costs.

7. Tenancy by the entirety (TBE)

TBE is a type of property ownership only available to married couples or registered domestic partners. Like joint tenancy, it includes a right of survivorship. In this situation, each spouse owns an undivided interest in the property, and neither can sell or give away their interest without consent.

Pros of tenancy by the entirety

Survivorship rights: Similar to joint tenancy, TBE includes a right of survivorship. This means that when one spouse dies, the surviving spouse will inherit the deceased's interest in the property, avoiding a lengthy probate process.
Creditor protection: In many states, creditors of one spouse can‘t attach a lien or force the sale of a property held as TBE to satisfy debts, unless the debt applies to both spouses.
Spousal consent for transfers: Neither spouse can sell or transfer their interest in the property without the consent of the other, preventing unilateral decisions that could negatively impact the other spouse.

Cons of tenancy by the entirety

Limited availability: TBE is only available in certain states, and even then, it’s only applicable to married couples or, in some states, formally registered domestic partners. This means you may not be able to take advantage of this type of ownership, depending on your location and the legal status of your relationship.
Lack of flexibility: As neither spouse can sell or transfer their interest without the consent of the other, the lack of flexibility may become an issue if one spouse wants to sell their share.
Potential for disputes: Because TBE involves multiple owners, disagreements may arise over decisions related to the property and its maintenance or sale.

In summary

The decision to become a property owner isn’t one that’s made lightly. Ownership of property involves significant investments of finances, time and energy. Because of the nature of this commitment, it’s a good idea to familiarize yourself with the various types of ownership in real estate, and how they may work for you. Whether you’re buying a family home with a white picket fence or joining a co-op, speak to a real estate expert if you need additional guidance. They may be able to provide valuable insight and advice tailored to your specific situation. Please speak with your own legal counsel and tax professionals.