Types of Ownership in Real Estate

Do you have an interest in investing in real estate? The good news is that many different ways to jump-start your investment journey exist. Before you can do that, though, you’ll need to familiarize yourself with the types of ownership in real estate. Learning these eight main ownership types will help you make informed investment decisions. 

8 Types of Real Estate Ownership

Real estate is a form of real property that includes lands and any improvements to said lands (e.g., building a house on a parcel). There are detailed laws governing real property ownership, making it easy to protect your rights as an investor. 

However, the complexity of these laws also means there are multiple ways to assert ownership over real estate. Here are the eight most common types of ownership in real estate: 

1. Sole Ownership

Sole ownership means that one person holds the title to the property. You’ll have complete control over your purchase, making it one of the simplest ownership frameworks. 

This option is ideal if you want full authority over your investment decisions. You might want to own a property by yourself if you intend to purchase a flip and desire total control over the remodel. 

However, sole ownership also means you bear all risks and responsibilities. Suppose you purchase a flip and find out it needs much more work than you initially realized. In that case, you’ll be liable for any debts and legal issues related to the property. 

2. Joint Tenancy

Joint tenancy involves two or more people owning a property with equal shares. If you and one other party co-own a home, you each have a 50% stake in the property. If you co-own a property with four other people, each of you will have a 20% stake in it. 

Most states adhere to the right of survivorship principle when dealing with joint real estate ownership. In other words, if you co-own a home with one other party, you will obtain rights to the whole estate if they pass away. 

Married couples and business partners typically use a joint tenancy agreement. It’s relatively simple and includes built-in protections for both parties. Before entering a joint tenancy agreement, ensure you and the other party are on the same page, as you must agree on all decisions made about the property. 

3. Tenancy in Common (TIC)

Tenancy in common is similar to joint tenancy in that you will share rights to the property with others. However, there are two main differences. First, the share of the property does not have to be equal. Second, each owner can pass their share on to their heirs because there aren’t any right of survivorship protections. 

Say you work with another investor to purchase a home and opt for TIC ownership. You put 70% of the money into the fund, and they put the remaining 30%. If you sell the property, you would be entitled to a 70% cut of the profits, and they would receive the other 30%. 

TIC is a great option for pooling resources with other investors. However, if a dispute arises, it can be difficult to resolve, as no one can make decisions without the approval of other parties. 

4. Tenants by Entirety (TBE)

Tenants by entirety are only available to married couples. Under TBE, both parties are considered a single legal entity, and the property cannot be sold or transferred without approval from both spouses. 

If one spouse dies, the other party receives their ownership stake. TBE provides protections against individual creditors, as the property cannot be seized to satisfy debts owed by just one spouse. However, not all states offer TBE.

5. Community Property

Community property is a form of ownership recognized in some states. Property acquired during marriage is considered to be jointly owned by both spouses (the community). 

Each spouse has an equal share, regardless of who purchased the property. Typically, community property laws only apply to property that the spouse acquired after marriage.

Consider a scenario in which you married in 2020 and purchased one investment property in 2019 and another in 2022. Even though you made both purchases independent of your spouse, your spouse would be considered a joint owner of the 2022 home but not the one bought in 2019. 

6. Corporate Ownership

Corporate ownership involves holding real estate through a legal entity like a corporation. It provides limited liability protection by separating your assets from business liabilities.

You can also unlock tax benefits by using a corporate ownership strategy. Corporations can hold commercial properties, rentals and investment homes. However, setting up and maintaining your corporate structure can be tedious and expensive. 

7. Real Estate Trust

A real estate trust allows you to transfer property ownership to a trust. These entities are managed by a trustee for the good of the beneficiaries. There are two types of trusts: Irrevocable and revocable. You can’t change an irrevocable trust once established, but you can dissolve or alter a revocable trust. 

Many high-net-worth individuals use real estate trusts to avoid probate and manage their assets. They can privately pass down homes, commercial assets or land while providing their loved ones with tax benefits. If you build a large real estate portfolio, you may want to speak to an estate planner about setting up a trust. 

9. Owning Partnership (LLC)

Owning real estate through an LLC combines partnership benefits with corporate ownership. You can work with multiple investors to pool resources while protecting yourself from certain liabilities. You’ll also enjoy pass-through taxation advantages, which can reduce how much you owe in state and federal taxes.

Your LLC can own residential, commercial or investment property. You’ll enjoy flexibility when adding or removing partners as well. 

Which Real Estate Ownership Is Right for You?

Perhaps you’ve got your sights set on commercial property. Alternatively, maybe you want to buy your first rental. No matter your financial goals and personal preferences, it’s important to choose the right types of ownership in real estate for your situation. 

Sole ownership offers simplicity and control but comes with higher risk. Corporate ownership and LLCs provide more liability protection and tax benefits, making them appealing if you have a large portfolio.

Consulting with legal and financial professionals can help you assess your options and determine the best ownership structure for your needs. They can guide you through the complexity of property law, estate planning and investing so you can ensure your portfolio is protected and aligned with your goals. 

Frequently Asked Questions