Taking Ownership — Tenants in Common vs Joint Tenancy- Do You Flip a Coin?

There are many ways of tak­ing own­er­ship to real estate. Investors call us when they are sell­ing a prop­er­ty and some ques­tion why they took own­er­ship in the man­ner they did. You do not want to take a chance a title own­er­ship by a flip of a coin.

By Al DiNi­co­la, AIF®, CEPA ™
adinicola@namcoa.com
July 28, 2023
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC

Basi­cal­ly, there are two meth­ods of tak­ing own­er­ship. Specif­i­cal­ly, you may own real estate by your­self or with oth­ers (con­cur­rent own­er­ship). If you own the prop­er­ty by your­self, it is known as Own­er­ship in or by Sev­er­al­ty. (you may also see a ref­er­ence to ten­an­cy in sev­er­al­ty). If there is only one own­er, the real estate con­cept is that the own­er is “sev­ered” from oth­er own­ers. When there is only one own­er the own­er has the most con­trol over the prop­er­ty. When you have an exclu­sive right to the prop­er­ty, you can do what every you want (depend­ing on local zon­ing laws).
When two or more peo­ple (includ­ing enti­ties) own prop­er­ty togeth­er at the same time this is con­cur­rent own­er­ship. Con­cur­rent own­ers may be joint ten­ants, co-ten­ants, or co-own­ers, and they may have dif­fer­ent forms of uni­ty, such as uni­ty of per­son or uni­ty of pos­ses­sion. There may also be writ­ten agree­ments under con­cur­rent own­ers to estab­lish rights and oblig­a­tions as well as con­trol.
The two most com­mon­ly ref­er­enced forms of con­cur­rent own­er­ship would be Ten­ants in Com­mon or Joint Ten­an­cy.
Most Com­mon may be Ten­ants in Com­mon
There is a great deal of flex­i­bil­i­ty in ten­ants in com­mon own­er­ship. Ten­ants in com­mon pro­vide for mul­ti­ple own­ers as well as dif­fer­ent own­er­ship per­cent­ages. If there are four own­ers of a prop­er­ty, own­er A may have a 50% own­er­ship. Own­ers B & C may have 20% own­er­ship each. Own­er D may have a 10% own­er­ship. One com­ment about own­er­ship and ten­ant. Ten­ants in com­mon is the type of own­er­ship and not be con­fused with a ten­ant rent­ing a prop­er­ty.
There oth­er advan­tage Ten­ants in Com­mon may pro­vide is enabling own­er­ship is acquired at dif­fer­ent times. Owner/tenant D may have acquired its 10% from Own­ers B & C who may have each owned 25% orig­i­nal­ly. Each own­er may also have their own title to their per­cent­age of own­er­ship.

Joint Ten­an­cy ~ Ben­e­fits and Restric­tions
Real estate investors may be seek­ing addi­tion­al pro­tec­tions and joint ten­an­cy pro­vides those pro­tec­tions as well as restric­tions. Unlike the ten­ant in com­mon, joint ten­ants must receive own­er­ship at the same time and equal shares. There are four legs to the joint ten­an­cy struc­ture: own­er­ship obtained at the same time, own­er­ship is in equal inter­est, same title own­er­ship and equal pos­ses­sion of the prop­er­ty.
If any of the legs are miss­ing the joint ten­an­cy (con­cur­rent own­er­ship) will be in jeop­ardy. One leg mis­sion then the joint ten­an­cy is gone and now reverts to ten­ants in com­mon (oh no).
For exam­ple, there are four own­ers (Rebec­ca, Mary, Susan, and Kim) and all own prop­er­ty as joint ten­ants and own­er Kim sells her own­er­ship to anoth­er per­son (Bet­sey). Since Own­er Bet­sey obtained own­er­ship at a dif­fer­ent time that own­er would be a ten­ant in com­mon.
Rights of own­er­ship are pro­vid­ed in each struc­ture.
How­ev­er, there are not­ed dif­fer­ences. One not­ed dif­fer­ence is the death of an own­er with Right to Sur­vivor­ship
There are a num­ber of ques­tions that come up when any prop­er­ty own­er dies and the words right of sur­vivor­ship may answer those ques­tions. If you own a prop­er­ty and one of the own­ers die (not, you) then the inter­ests of the deceased own­er trans­fer to the sur­viv­ing own­ers. So, if Rebec­ca, Mary, Susan, and Kim own a prop­er­ty as joint ten­an­cy and Kim dies, Rebec­ca, Mary, Susan would each own 33.33% of the prop­er­ty. Fam­i­ly mem­bers and chil­dren of Kim may be con­cerned about own­er­ship rights and inher­i­tance.

Are there any ben­e­fits to the Heirs?
Under the ten­ants in com­mon own­er­ship there are “no rights to sur­vivor­ship” pro­vid­ed to the own­ers of a ten­ants in com­mon. Heirs of the deceased own­er (Kim in the pre­vi­ous exam­ple) shall receive inter­est in the real estate and not the oth­er sur­viv­ing own­ers.

It’s Over (Ter­mi­na­tion)
At some point in time an own­er in any type of own­er­ship may be look­ing for an ear­ly exit. If a co-own­er in a joint ten­an­cy trans­fer or sells their inter­est to anoth­er indi­vid­ual the joint ten­an­cy will be ter­mi­nat­ed. If and when this hap­pens the own­er­ship will revert back to ten­ants in com­mon struc­ture

There are sev­er­al sit­u­a­tions where a ten­ant in com­mon may be bro­ken up. These sit­u­a­tions may be well planned or strate­gic (hos­tile). The own­ers decide to sell the prop­er­ty, and each receive their share of the pro­ceeds accord­ing to their own­er­ship inter­est. An own­er may buy out the per­cent­age of own­er­ship of anoth­er co-own­er. If one of the own­ers dies, the heir may solic­it or offer the inher­it­ed inter­est to be acquired by anoth­er cur­rent own­er.

What is your pref­er­ence?

Many sin­gle peo­ple, fam­i­lies and cou­ples may pre­fer the ten­ants in com­mon own­er­ship pro­vid­ing trans­fer of right to the heirs. If at all costs, you want to avoid going through pro­bate
In any real estate there are times when one own­er may be seek­ing less respon­si­bil­i­ty of own­ing the prop­er­ty and con­sid­er sell­ing. Upon the sale of any of the prop­er­ties one or more of the own­ers (in the own­er­ship forms above) may wish to par­tic­i­pate and exer­cise a 1031 tax deferred exchange. Delaware Statu­to­ry Trust (DST) may be a solu­tion to elim­i­nat­ing own­er­ship respon­si­bil­i­ty and receive pas­sive income as well as all the ben­e­fits of real estate own­er­ship. The DSTs option also qual­i­fies for a 1031 exchange, this option of a 1031 and/or DST may become prob­lem­at­ic unless prop­er plan­ning is involved. There are many details on how to prop­er­ty posi­tion own­er­ship. Nor­mal­ly the ten­ants in com­mon pro­vide the eas­i­est solu­tion for a 1031 exchange. How­ev­er, we would strong­ly sug­gest con­sult­ing your tax pro­fes­sion­al if you have an inter­est in a ten­ant in com­mon. You may also need to plan for what is known as a “drop and swap”. Basi­cal­ly, drop­ping your type of own­er­ship and con­vert­ing to own­er­ship per­mit­ting a 1031 exchange.

DSTs are not for all investors.
The acqui­si­tion of a DST is for accred­it­ed investors only. Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.
This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus. Invest­ing in secu­ri­ties, real estate, or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor. NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin ‑Sher­wood Rd, Suite 200 Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.
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Thank you.