How to Co‐Own Real Property

Taking Title as Tenants in Common

Decide on ownership interests. Tenancy-in-common is considered one of the most flexible ways to co-own real property because the owners can decide among themselves what percent ownership stake each individual owner has in the property. You also can allocate expenses to maintain or develop the property according to the division of ownership interests, or according to the interest and expertise of the owners. For example, suppose you and a colleague are buying a parcel of land to build condos. You have interest in sustainable building materials and energy efficiency, while your friend has expertise building luxury interiors and community amenities. In that scenario, as tenants-in-common you could divide the control and expense of building those things and accordingly give your friend the larger interest she would need to construct swimming pools and lakes surrounding the condos, while you could focus on the land where the condos would be built.

Draft a written agreement. Any decisions you make regarding your ownership interests and how you will share the costs and responsibilities of maintaining the property should be put in writing so they become legally binding. Your written agreement can be used to resolve any disputes that arise later on. Even though you and your partner may be on wonderful terms now – after all, you're buying real property together – things may sour down the road. Besides the ownership interests the two of you have worked out, your written agreement discusses property expenses, what might happen if one of you decides to sell your interest, and how disputes will be resolved.

Secure financing. Where a mortgage is necessary, typically co-owners who plan to take title to a property as tenants in common must each obtain their own financing for the portion of the property they will own. People intending to purchase land as tenants-in-common can take out a joint mortgage on the whole property, then pay a portion of the mortgage payment each month according to their ownership interest. However, as tenants-in-common you also have the ability to get separate mortgages that cover your fractional interest in the property. Separate mortgages can be a good idea if you and your partner have significantly different credit and income. Keep in mind that if you purchase two separate mortgages, each of you potentially will be responsible for separate down payments. The total of those two separate down payments may be greater than the single down payment you'd have to put down on a joint mortgage.

Execute and record your ownership documents. All deeds and ownership agreements must be signed by all co-owners and recorded with the county recorder in the county where the property is located. As tenants-in-common, all owners don't have to sign the ownership documents at the same time. You can execute the deed and obtain financing independently. Co-owning the land as tenants-in-common also allows you to add new partners later on if you decide it's necessary – you'll just have to modify or amend your co-ownership agreement to account for the new owner. For example, suppose you and your friend decide to bring a new partner into your condo development project who has skills in marketing and promotion to help you sell units in your new development. As tenants-in-common, you can allocate a percent ownership in the land to your new partner if you want. However, keep in mind any financing you obtained does not take that additional owner into account.

Forming a Joint Tenancy

Confirm you meet the legal requirements. To co-own real property as joint tenants, all owners generally must have unified rights in the property in terms of time, title, interest, and possession. Additionally, the language in ownership documents must be very specific to convey this interest. Unity in time means all co-owners take their shares of the property at the same time. Unity of title means all co-owners acquire title to the property by the same interest. This means you all must sign the same deed at the same time. Unity of interest means all co-owners have equal or identical ownership interests in the property. Unlike tenants-in-common, you can't proportion this out. If there are two co-owners, they each have a one-half interest in the property. This third unity is where language comes into play. The ownership documents must convey the interest to each co-owner in exactly the same way or the joint tenancy will fail and the co-owners will instead be considered tenants-in-common. The fourth unity, unity of possession, means that all owners have the right to possess the entire property. Unlike tenants-in-common, this cannot be parceled out – all owners must have the right to possess the entire property at all times. The key difference between a joint tenancy and a tenancy-in-common, however, is the right of survivorship. If one of the co-owners die, the remaining co-owners have a right to ownership in the property they left behind that is superior to all others, even creditors of the deceased. There is another type of joint tenancy referred to as a "tenancy by the entirety," which is only available to married couples. In addition to the four unities, you also must be married to the co-owner. This form of real property ownership is still recognized in some states, but many states have abolished it.

Apply for a mortgage. If you need to finance your joint purchase of the property, typically joint tenants also must jointly apply for a mortgage and both meet approval for financing, so that both of their names are included on all documents. While it is technically possible to have multiple fractional mortgages, you must take care to ensure they each cover equal portions of the property. Additionally, you must maintain the four unities. The unities of time and title are at issue here. If you have multiple mortgages, it may mean that one owner takes title to the property at a different time than the others do. For these reasons, getting a joint mortgage on the property as a whole typically is your best option if you want to co-own real property as a joint tenancy.

Record the transfer. Once financing is in place, both tenants must sign all ownership documents at the same time to preserve their unified rights and ensure that a joint tenancy is created in the property. Make sure you are following the signature and witness requirements in your state to properly transfer title in the property from the previous owners to you and your co-owner. Keep in mind that joint tenancy also requires all co-owners to take title on the same document. This means you can't add a new co-owner later, because you will destroy the unity of time. If you wanted to add a new co-owner later, your ownership interest would be converted to a tenancy-in-common, and you would lose the right to survivorship.

Owning Property Through an LLC

Organize your LLC. If the company doesn't already exist, you must get together with the other potential co-owners of the property and create an LLC through which you all will purchase and manage the property. Search the business name database of the state in which the property is located to find a name for your LLC. It cannot be identical or similar to the name of a company already registered with the state. These databases typically are available online at the website for your state's secretary of state. Once you've found an available name, you should reserve it to ensure its availability while you complete the organization process. You'll have to pay a fee to reserve your name. You'll have to get together with the other members of your LLC to draft your Articles of Organization and Operating Agreement for your LLC. You typically can find forms online to create these documents, or you can hire a business attorney to draft them for you.

Register your LLC in the state where the property is located. Different states have different registration requirements that you must follow, but generally you must file your Articles of Organization with the state's Secretary of State office and fill out required forms. You must pay fees to register your LLC, and fill out forms identifying your registered agent for service of process in the state. Even if you or other members of the LLC don't live in the state where the property is located, your registered agent must be a resident of that state. You typically don't have to file your Operating Agreement with the Secretary of State, but you should create one anyway. This document defines the roles of each member of the LLC, ownership interests, and distribution of profits.

Purchase the property. If financing is required, any mortgage applications must be completed in the name of the LLC rather that in the names of any individual members, so that the LLC becomes the record owner of the property. You must get an employer identification number (EIN) from the IRS so that you can file taxes for your LLC. The EIN also allows you to purchase property, enter contracts, and open bank accounts in the name of the LLC. Even if you don't have any employees, the state typically requires an EIN – rather than the Social Security number of a member – be used to file property taxes and other state taxes on behalf of the LLC.

Take title to the property. Once your LLC is legally formed, it becomes its own legal entity and can enter into contracts, purchase land, and work with builders or contractors to develop the land according to the company's plans. The property will be owned by the LLC, rather than by any of the members of the LLC. The benefit of this is that you can add members at any time without having to disturb any property ownership documents. Members of the LLC who no longer want to own the property or be a part of the project can simply leave the LLC. Since their name isn't on any property documents, no transfer of ownership interests takes place.