What does it mean to have ownership interest in a property?
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You’ve purchased a home, congratulations! But what that means, whether you own the property outright, how ownership is split (if at all) and a host of other factors contribute to how homeownership will affect your finances. Knowing your rights, limitations and risks can help you make better-informed financial and legal decisions. Learn more about how ownership interest in a property works, as well as the different types of ownership interest and associated rights.
What is ownership interest in a property?
Owning real estate grants you the right to possess, use, improve or sell your property as you see fit. But those rights may change depending on how the home is titled — whether you have sole ownership, or whether other parties also share ownership interest. (For instance, if you co-own the home with another person, like a spouse, or share ownership rights with other parties, such as investors who don’t use the property as their primary residence.) Even though you may be the primary resident, you may not have an exclusive ownership interest in the property.
“Ownership interest in a property can, for example, be divided among multiple owners listed on the deed and title, with each owner having a percentage of ownership interest in the property,” says Jasen Edwards, chair of Agent Advice’s Agent Editorial Board. “Ownership interest can also be transferred to other individuals or entities, such as through a sale or transfer of title.”
Is ownership interest the same as owning a home?
Having an ownership interest in a property is not quite synonymous with owning a home outright, but they’re very similar. Both involve having a stake in a particular piece of real estate. In both instances, the owner has rights to the property, and is also responsible for any expenses associated with its maintenance.
“But there are a few key differences between owning a home and having an ownership interest,” Edwards says. “When you own a home solely, you typically have exclusive rights to the property — meaning no one else has a stake in it. Ownership interest in a co-owned property, on the other hand, may involve, for example, one party owning a 75 percent stake in the property versus a 25 percent stake held by a second owner.”
Also, when you own a home outright, you usually reserve the right to sell the home and transfer ownership to another party. This is not always possible when it comes to ownership interest. “In some cases, such as a trust or a business partnership, the ownership stake can be non-transferable, meaning it cannot be sold or given away,” Edwards says.
Note that when one or more parties purchase a home, the property deed and title should indicate who owns the property. “However, the title does not always guarantee ownership of the property,” says Edwards. “Title can be affected by taxes, liens, lawsuits or other legal issues. Therefore, it’s important to consult with a real estate lawyer or professional to ensure your title accurately reflects the ownership interest of the parties involved.”
Types of ownership interest
There are several different types of ownership interest you can have in a home or other real estate property. Take the time to understand each, how they work and the rights associated with each type of ownership interest.
In many cases, homes have just one owner listed on the deed and title. This indicates sole ownership — having 100 percent of your property in your own name. When you are the only owner, you have full rights and control over your property and can use, lease, sell or transfer the home as you see fit.
Does this also apply to a married couple? “In the case of spouses, the laws of marital assets vary from state to state,” says Zev Freidus, broker and president of ZFC Real Estate in Boca Raton, Florida. “But even if your home is considered a marital asset, having it titled in your sole name means you can make these decisions without your spouse.” (Any proceeds from a sale would still be considered a shared marital asset, though.)
Joint tenancy is a form of co-ownership that enables two or more people to own a property together. Each owner has an equal share, and each has the right to use, lease, sell or transfer their share of the property. With joint tenancy, all owners must agree before the property can be sold. “The key aspect of joint tenancy is the right of survivorship — meaning if one of the joint tenants passes away, the surviving joint tenant will automatically inherit the deceased joint tenant’s share of the property,” Edwards says.
Tenancy by entirety
This arrangement is similar to joint tenancy, but tenancy by entirety is available only to couples who are married or in an official domestic partnership at the time they take title. Instead of owning equal shares, both parties own the property in its entirety.
“The main advantage of tenancy by the entirety over joint tenancy is that, because both parties own 100 percent, it is protected from either spouse’s individual creditors,” Freidus says. This arrangement is most common in community-property states. Creditors are prohibited from asserting claim to the property if they’re trying to collect on a debt that’s owed by one of the two spouses.
Tenancy in common
With tenancy in common, each tenant can own a different percentage share of the property. This type of ownership interest can be transferred independently of the other shares and can be inherited by the owner’s beneficiaries.
This arrangement is often best for groups of people who want to purchase a property together, and for married couples who don’t want their share of the property to automatically transfer to their spouse. Just be aware that if you own a property via tenancy in common but lack a will, your share of the property will be distributed based on state probate law.
Living trust ownership
Alternatively, you can own a home in a trust, which is a legal vehicle that permits you or a named trustee to transfer assets, including real property like your home, to your beneficiaries after you pass away without your survivors having to deal with the lengthy probate process. “With this option, you can also potentially save on capital gains taxes due to the step-up in basis. And a trust provides asset protection from creditors, too,” Freidus says.
This type of ownership interest is primarily chosen for investment properties, including rental buildings. It has the advantage of creditor protection as well as the ability to establish your own set of rules for the owners, or shareholders, involved. “Unlike joint tenancy, where all partners have to be equal owners and have equal rights, company ownership is governed by its operating agreement,” Freidus says.
There are many different ways to own or co-own a home or other piece of real estate. Each ownership interest option has its pros and cons. If you are preparing to buy a home, especially with a spouse or other partners involved, weigh your choices carefully and consult a real estate attorney for advice on any ownership matters you don’t fully understand.