Real estate is often considered the best kind of investment, especially for those who want to go for the long haul and not just for a quick profit. If you're looking to invest in property, then do you know that there are different types of ownership? Here's what you should know about them:
Tenants in common
Tenants in common, often referred to as TIC, is a type of real estate ownership wherein two or more persons have an undivided interest in the property. It qualifies under IRS Section 1031, released under Revenue Procedure 2002-22. As such, it's often commonly referred to as TIC 1031, with many properties available all over the U.S.
This type differs from other kinds of joint ownership in that there are options for different interest percentages. Ownership interests can be passed on to others as a form of inheritance.
Unlike TIC, in joint tenancy, two or more people share undivided and equal interests in the real estate property. Any two or more persons can share joint interests. However, spouses who have a joint tenancy can enjoy certain tax benefits. If one of them passes away, the value of the property is immediately passed on to the surviving spouse. There are no tax consequences or probate processes needed.
A joint property that is not between spouses can spell trouble in the future. This is because when one of the owners dies, the value of his or her shares is included in his or her estate. This means that a probate process is needed. Should the remaining owners choose to sell the property, they might have to wait for a long time until the process is done.
There is also another type of joint tenancy, called the joint tenancy with rights of survivorship or JTWROS. The joint tenants still have undivided interests. However, when one of them dies, that person's share immediately passes on to the other remaining owners. Alternatively, the person can choose to give away his or her interest to another person while he or she is still alive.
If you want to have full ownership of a property, then sole proprietorship is for you. You will own a complete interest in the property. Ownership is passed to another person through transfer documents or the laws of succession.
One of the benefits of sole ownership is that when the owner passes away, the heir can sell the property at the current market value without capital gain. This means that if a son inherits his parents' estate, valued at half a million, he can sell it for that exact amount, even though it was bought at just half that.
Tenants by the Entirety or Community Property
Community property means that either of the spouses does not solely own any income generated or asset obtained during a marriage. They are part of the community of marriage and are therefore equally owned by the two people. Hence, both spouses are tenants by the entirety. Either of them can choose to leave their share to a certain heir upon their death. As such, the percentage of the other spouse does not automatically go to the surviving spouse upon death.
For example, a deceased husband can choose to give his shares to his children from his previous marriage if he states on his will. His current wife won't be able to do anything to stop the transfer. However, the husband cannot give his shares to anyone else while he is still alive without the consent of his present spouse.
Moreover, if the couple divorces, their community property ownership is immediately transferred into tenants in common. Community property law exists in the states of California, Washington, Texas, New Mexico, Idaho, Louisiana, Wisconsin, Arizona, Nevada, and Alaska.
Owning real estate can prove to be a lucrative venture in the long run. This is why many people, including successful businessmen and businesswomen, swear by property as the best kind of investment. If you're looking to go into real estate, then keep these ownership options in mind and choose which one is best for you.