Three common partnerships to buy real estate
Whether you’re interested in investment property, a new family home, or an office in a building you couldn’t afford on your own, it often can be advantageous to buy Real Estate as part of a group or partnership in California.
There are many options for doing that, from forming a corporation to buying shares in a co-op, but the three most common, each with its own distinct features, are:
1) Joint tenancy – Two or more owners buy real estate at the same time and hold a single deed to the same piece of property. Ownership is divided equally among them. The owners also hold the right of survivorship, meaning that when one dies, the remaining owners absorb that person’s interest in the property.
Many real estate attorneys discourage this type of ownership contract when a group buys real estate. The primary reason is that other arrangements can provide equal protection for the partners, while offering a less rigid structure and better tax protection.
2) Tenancy in common – Similar to joint tenancy, except that when the group buys real estate and holds a tenancy in common, the percentage of ownership can vary from partner to partner, and there is no right of survivorship. Individual owners can sell their interests and pass them on to heirs.
By forming a partnership, individuals can increase their purchasing power, while dividing the ownership in a way that gives owners control only over their individual shares. Tenancy in common can be used for any type of property, from undeveloped land to an apartment building the group intends to buy and occupy.
This type of group ownership is becoming more common when partners buy real estate because of its increased flexibility and tax advantages. Owners can sell or pass on their share of the property without affecting the tenancy in common agreement, and heirs do not have to pay capital gains tax on the increase in value from the initial sale to value at death.