For many people, buying a home or an investment property is the culmination of years of dreaming, hard work, and saving.
Purchasing real property comes with some important decisions, most notably, how to hold the title for the residence or asset. This decision, known as title vesting, affects the legal rights of the property owners, as well as directs the flow of payments if the asset is sold.
Let’s take a look at five of the most common types of title vesting and their implications for homeowners and real estate investors.
Real estate owners have many different options for title vesting, and each method affects their legal rights and responsibilities. We’ve highlighted these five common title vesting options to help investors and homeowners better understand their options when it comes to title vesting a residence or investment property.
In this ownership structure (also known as a TIC), each owner holds joint title to the property, but ownership percentages don’t have to be equal – one owner can hold an 80 percent interest, and two others just 10 percent, for instance. However, regardless of how much of a percentage each owner has, all owners have the same legal rights to use and occupy all aspects of the property.
The TIC ownership structure has some very important considerations:
This is perhaps the most common form of title vesting, especially among commercial real estate investors.
In a joint tenancy, each owner holds equal rights, responsibilities, and undivided interests to the home or investment property. The reason why it often makes sense for investors is because it stipulates the right of survivorship – if one owner dies, his or her shares of the property automatically transfer to the surviving owner(s). This process avoids any lengthy probate battles in court with a decedent’s heirs since the right of survivorship trumps any stipulations set forth in the decedent’s will. Joint tenants also aren’t allowed to sell their shares in a property without receiving full consent from all other owners.
This option of title vesting is common for married homeowners. There are nine states that have community property rules:
The main consideration of community property rules is that each spouse owns an equal percentage of the house regardless of who put up the money to buy the residence. If the home is sold, each owner gets an equal percentage of the sale proceeds.
Single people and married couples who purchase or hold investment properties apart from their spouses often choose the option of title vesting as sole owners. Single-owner title vesting makes it easy for an individual to dispose of an investment asset or sell a rental property because the owner doesn't need to consult other owners. It’s extremely important that sole owners stipulate their wishes for transferring ownership of real property assets upon their death, though, since dying without a will or estate plan in place can create serious legal challenges for heirs.
This seldom-used method of title vesting is for legally married home or property owners. Titles vested as tenants by entirety consider the couple one legal taxpaying entity, so it's the couple itself that holds undivided interest in the property. Title to the asset automatically transfers to the surviving spouse upon death of the other. Twenty-five states recognize this option for title vesting.
Title vesting is the manner in which owners hold title to a home or investment property. It also defines their legal rights and responsibilities. Title vesting has important considerations for jointly owned properties, especially the right of survivorship. If you have any questions about title vesting, consult a real estate attorney to discuss your best options prior to purchasing an investment property.