Hey guys, Cody Sperber here back in action with our awesome ongoing blog series that covers all the fundamentals that every investor needs to know. Previously, we discussed the difference between a title and a deed, so now we’re going to build upon that by talking about 4 ways you can obtain title (purchase real property and its rights) with a partner or a spouse and the benefits of doing so.
Joint Titles and the 4 Ways to Obtain Them
When purchasing a home with somebody else, you’re going to have to decide how to take title. But before we talk about the 4 ways to do this, I want to mention the ramifications that will go with your choice.
The type of title you pick will have impact on:
- Division (if any) of ownership
- How the property passes on in the event of a death or divorce.
Now, let’s talk about our options. The 4 ways to take title are:
- Tenancy in Common
- Joint Tenancy
- Tenancy by the Entirety
- Community Property
Now that we know what they are, let’s talk about each one individually…
Way #1: Tenancy in Common
Tenancy in Common (when you take title as tenancy in common) each tenant holds an undivided fractional interest in the property.
A tenant in common may hold any portion of the interest in the property. In other words, ownership or interest in the property among two people may be split 50-50 or it could be 30% and 70%. However the split is divided, the co-owners have unity of possession – and what that means is they’re entitled to possession of the whole property and not just their interest.
Because the owners have a separate interest, each can sell their interest to a third party without the consent of the other party. However, they cannot transfer ownership of the entire property, just their interest. When one of the co-owners dies, the tenant’s undivided interest passes on according to his or her will, not to the remaining property.
Let’s move on…
Way #2: Joint Tenancy
This version of tenancy has the “right of survivorship“ built into it. With joint tenancy, if one party dies, the remaining owner or survivor obtains the interest. In this scenario, the interest in the property will not pass on to their heirs.
When purchasing a home with a wife or a fiancé, make sure you understand who will obtain the interest in the property in the event of a death.
Way #3: Tenancy by Entirety
This form is not recognized here, in my state of Arizona. But, that’s okay because some states do allow husbands and wives to use a special form of co-ownership called tenancy by the entirety. In this scenario, the couple each will have an equal and undivided interest in the property.
In order for the interest in the home to be passed on to their heirs, both parties in the marriage must sign the deed that’s going to transfer their interest to another party, essentially acting as one unit.
Way #4: Community Property
With title being held as community property, the husband and the wife are considered equal partners in marriage and everything obtained after marriage is part of the community property.
There is NO “right of survivorship.” Therefore, if one individual dies, that individual’s interest in the property is passed on according to their will. If there’s no will, the state will handle the assets.
Take Away to Remember
It’s important to carefully choose how you’re going to take title with your partner because each form of title has different rules for selling a property to another individual as well as different rules for passing their interest in their property to another party in the event that somebody dies.
The type of ownership you choose when buying property with a partner or spouse is NOT a decision made lightly… it can have major ramifications on your business and your bottom line, not just on a deal-by-deal basis, but overall.
Now, I know that was a lot to take in, but this is important stuff you really need to understand because in the next blog we’re going to talk about the 4 profit centers of residential real estate. So pay attention and keep up with this series and, I guarantee, it will make you a more confident investor and put more money in your pockets.
So until next time…
Keep it cool,