Tenancy in Common vs Joint Tenancy?
When it comes to real estate, there are various ways to co-own property, each with its own set of benefits and considerations. Tenancy in common (TIC) is one option that offers a flexible and versatile approach to property ownership. It is often confused with “joint tenancy,” but the two are not the same thing. And, like most real estate investment strategies, TIC is not without drawbacks. Let’s take a closer look at tenancy in common vs joint tenancy, along with some things to consider before you choose this route of ownership.
What is Tenancy in Common?
Tenancy in common is a form of property ownership that allows two or more individuals to own a piece of real estate together. A key distinction in TIC is that the owners do not have to own equal parts of the property. One owner might have 60 percent, for example, and the other 40 percent. The tenants will agree upon their percentage of ownership based on money invested, prior experience, or any other factor they deem appropriate.
Tenancy in Common vs. Joint Tenancy
While the two terms sound similar, they have a few key distinctions:
Ownership Share in TIC vs Joint Tenancy
Again, in TIC agreements, the property does not have to be shared equally. In a joint tenancy, the property must be shared equally amongst all owners. Interestingly, it is TIC that is the default ownership status for married couples in Colorado and many other states. Unless you specifically state on the deed and other documents that you wish to have a joint tenancy, it is inferred that you are entering into a tenancy in common arrangement.
Right of Survivorship
This is another important difference between tenancy in common vs joint tenancy. In a TIC investment, the property share will pass to a designated heir or beneficiary upon the death of the owner. In a joint tenancy, that property will automatically pass to the surviving owner or owners of the shared property.
Severability of Tenancy in Common vs Joint Tenants
TIC arrangements allow individual owners to sell or transfer their shares independently, without the consent of other co-owners. In a joint tenancy, a unanimous agreement must be reached in order to transfer ownership.
What is Tenancy by Entirety?
There is a third type of property ownership in real estate, which is called “tenancy by entirety (TBE).” In this arrangement, all owners have 100 percent interest in the property. This is the default ownership status for married couples in some other states, including Oregon, New York, Pennsylvania, Missouri, and North Carolina. In this case, the property is viewed as being owned by a single entity.
Tenancy by entirety is not generally used outside of marriage. As with a joint tenancy, the surviving owner (the spouse) would inherit the property in the event of the other spouse’s death.
Advantages of Tenancy in Common in Real Estate Investment
As a real estate investment strategy, TIC can be a fantastic option with several advantages:
Tenancy in common is flexible, allowing co-owners to have unequal ownership shares, which can be advantageous in situations where one party has made a larger investment in the property. Likewise, you can sell or transfer your share of the property any time you like.
TIC ownership acts as an asset you can pass on to your family. This means your investment can transcend generations. It provides more freedom for estate planning, as owners can designate specific heirs to inherit their share upon their passing.
Tenancy in common is not limited to spouses and can be used by unrelated individuals, friends, or business partners. This allows you to form invaluable business connections and refine your expectations for a successful partnership.
Drawbacks of Tenancy in Common vs Joint Tenancy
Lack of Survivorship Rights
Unlike joint tenancy and tenancy in entirety, there is no automatic right of survivorship. Unless your co-owners designate you as a beneficiary to the property, shares automatically pass to surviving family members and other heirs of the deceased’s estate. This can cause complications and confusion in a previously stable arrangement.
With unequal ownership shares, disputes can arise over decision-making and property management. Ideally, TIC agreements should be carefully drafted to outline specific ownership responsibilities and benefits.
There is also the possibility that one or more owners will default on the loan for the shared property. If this is the case, the other owners are still responsible for paying the entirety of the loan. Likewise, all tenants are responsible for the full amount of property taxes due, regardless of who is or isn’t paying.
Why Would You Want a Tenancy in Common vs Joint Tenancy?
Tenancy in common arrangements have become increasingly popular in areas where property values are too high for individuals to afford a home on their own. Rather than renting with a roommate, you can enter into a TIC agreement with a friend, significant other, or business partner and begin building equity in a property together. When you are ready to leave, you have the freedom to sell your portion of the property without any red tape. It can be a great way to get your foot in the door of home ownership.
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