Joint ownership may be the way into or out of a real estate market that is keeping you from going solo.
Whether you are a buyer overwhelmed by escalating prices or an owner undermined by financial over-extension, joint ownership may offer an acceptable alternative to being squeezed out of the real estate market.
Concurrent ownership arrangements, in which two or more related or unrelated individuals own a property at the same time, could involve a nonresident co-owner, an investor, a group of investors or a live-in co-owner:
- "Sell and stay" option for a property owner who becomes financially over-extended, or wishes to diversify financial holdings, and decides to sell an interest in the property to another person or persons, who may or may not move in, too.
- "Buy together" alternatives that enable individual purchasers, perhaps shut out of a hot market, to gain a real-estate foothold that may be the first financial step toward solo ownership. Two or more people buy a property together and take ownership, but not necessarily residence, at the same time.
Joint ownership may suit a variety of lifestyles, including those who have resources to live alone comfortably but prefer to share their lives or diversify their real estate holdings. Selling an interest in your home to someone other than a family member, or buying a property with unrelated individuals, can be a housing alternative that results in a very supportive atmosphere -- or in a nightmare existence.
Since joint ownership is easier to get into than out of, exercise great caution before making any commitments as a buyer or seller. The amounts of money involved, the complexities of real estate and the dynamics of living under one roof can wipe out the benefits in any number of stressful ways. Incompatibility and financial shortcomings are just two of many problems that may sour the venture.
Any of the benefits of sharing -- reduced maintenance responsibilities, security, increased standard of living, preservation of independence, enjoyable companionship etc. -- may act as the driving force behind creation of this relationship. For instance, you may want to liberate cash from residential real estate to purchase a cottage which would become home for half the year.
Variations on the basic concept of joint ownership are almost endless but all require caution, particularly if you are the initial property owner or the one with the cash. Before selecting a co-owner or two, check them out thoroughly and ask many compatibility questions. Jot down queries you would add to this initial list:
- What are the long-term and short-term goals and objectives of each co-owner, and how could their combined objectives overlap?
- How compatible are individual and combined objectives and goals -- and the individuals and lifestyles involved?
- Is joint ownership the best way, on all levels, to solve problems, meet objectives and achieve goals for both or all parties?
The safest and sanest way to approach joint ownership as a buying strategy is to explore the legal relationship and find compatible partners before the search for the dream property begins. For owners considering the sale of a share in their current property, try a short-term boarder or two to discover how you feel about someone else on your turf. You may decide tenants are less stressful than permanent co-owners.
Invest time understanding the pros and cons, similarities and differences, of the two types of joint ownership: tenancy in common and joint tenancy. These approaches are very different but have important concepts in common:
- Undivided interest: Everyone owns everything even if the house is divided into separate units by agreement.
- Limitation of relationship: Personal estates of joint owners do not merge.
When buying together, it’s your choice. Selling an interest in your current home dictates that ownership must be taken as tenants in common since joint tenancy may only be created under very specific circumstances. The following four unities or conditions must exist simultaneously:
- all the owners have equal interest
- all gain simultaneous possession
- all take ownership from the same person in the same document
- all take title at the same time.
Under joint tenancy, co-owners do not have the right held under tenancy in common to bequeath property in a will. On the death of one of the owners, the Right of Survivorship comes into play, dictating that interest automatically passes to the surviving joint owner or owners.
The following example illustrates the dynamics when one co-owner’s share is sold. Usually, but not always, the other owners have the first option to buy.
- If owner Bill sold his share in a property, that interest must be held in tenancy in common by the new owner, Susan.
- If originally there were two joint tenants, Bill and Lee, then joint tenancy would be ended, and Lee and Susan would be tenants in common.
- If there were four joint tenants originally, the new owner, Susan, would hold ownership as a tenant in common for one-quarter of the property. The remaining three owners would still hold three-quarters of the property in a joint tenancy relationship between themselves.
- If one of the joint tenants died, the remaining two would then divide the deceased owner’s share equally between the two of them. Susan, a tenant-in-common owner, and the deceased owner’s heirs would not receive anything.
- If Susan died, her share would be part of her estate and the joint-tenant owners would receive nothing.
Joint ownership combines the complexities of law and of relationships. Whether you sell a share in your home or buy a new one with at least one other person, everything that can be misunderstood or argued over should be covered in the joint ownership agreement and decided before signing anything.