There are several legal structures in which two or more people can hold title to real property. The most common joint-ownership structures are tenants in common and joint tenants.
A question sometimes arises about whether tenants in common are listed in county land registries. This article takes a closer look at that question, as well as some of the pros and cons of the TIC ownership structure and alternative investment options.
Legal Implications of Land Registration
All interests in real property, including mortgages, must be recorded in land records. Unlike the U.K., which maintains a single land and property ownership registry for all of England and Wales, there’s no one single national land registry in America. Instead, each county in the U.S. records and maintains its own registry.
County land registries typically record the following information:
- Titles and deeds
- Memorandums of leases
The majority of counties in the U.S. use electronic registries. Land registries are important because they document ground and building leases to ensure proper transfer of title from one estate to another, or recourse in the event of foreclosure. They also are generally accepted as proof of ownership, which eliminates the potential for improper disposal of real property or land.
So the answer to the original question is yes -- all persons with a tenants in common agreement are listed on county land registries.
Pros and Cons of Tenant in Common Ownership and Alternative Investment Options
There are several reasons why real estate investors complete 1031 exchanges by investing in a tenancy in common property. Among them:
- Timing. Investors have 45 days after selling a property to identify like-kind replacement assets. Sponsored, pre-packaged TIC properties can significantly expedite the identification and closing processes.
- Diversification. Some investors spread their 1031 exchange proceeds into multiple TIC properties, which can provide portfolio diversification and a hedge against regional market downturns.
- Lower minimum investments. There can be up to 35 investors in a TIC, and each co-owner can have unequal shares. This allows individual investors to make lower minimum investments if they choose.
Tenancy in common ownership structures aren’t without their drawbacks. Major operating decisions on a property must be unanimous, financing can be difficult to obtain since each co-owner is also a co-borrower, and investment funds are illiquid. Many 1031 exchange investors opt for a different ownership structure -- and it also excludes their names from county land registries if that’s important.
Pros of Delaware Statutory Trusts
Delaware Statutory Trusts, or DSTs, are another 1031 exchange-eligible ownership structure that allows multiple investors to purchase fractional shares of institutional-quality commercial properties. There is no limit on the number of investors in a DST, unlike a TIC, which is capped at 35.
DST property types typically include:
- Retail strip centers
- Multi-family apartments
- Industrial buildings
- Freestanding medical office and retail buildings
DSTs are also pre-packaged and sponsored, which allows investors to quickly identify replacement assets within the 1031 exchange 45-day identification window. Investors also can tailor investment amounts to exactly match the funds needed to satisfy exchange requirements. Other benefits include access to high-quality commercial real estate that typically would be well out of reach for solo investors. With DSTs, mortgage financing, when necessary, is already in place and is non-recourse -- investor’s assets outside the DST are sheltered.
Lastly, in a Delaware Statutory Trust the trust itself is the registered entity for the property rather than the individual investors within the trust. This is just one reason why many investors opt for professionally managed DSTs to complete 1031 exchanges versus other joint ownership structures when they want to defer capital gains and depreciation recapture taxes from the sale of real property.
The Investor's Guidebook to TIC's
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