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Home Co-Ownership can make owning a property more affordable while being a better alternative to renting. Learn about the four types of co-ownership and the risks and benefits involved.
In a perfect world, owning your own property would be the preferred option. For the vast majority however, buying a property is not simple and issues with home prices and mortgage affordability are common. It is cases like these where co-ownership becomes an attractive option to owning real estate.
In order to accurately assess whether co-ownership is for right you, it is important to look at the different types of co-ownership available, along with the overall risks and benefits of owning a property with other people.
1. Tenancy in Common
This type of co-ownership is for two or more people who will have an equal or unequal interest in the property. Each tenant (owner) will own a share in the property and will be entitled to their proportion in any income and expenses related. Each co-owner may also sell, lease or will their portion of ownership upon death.
2. Joint Tenancy
This type of co-ownership is also for two or more people, but will have an equal interest in the property. The property must be acquired by all owners at the same time, and is subject to the right of survivorship. The right of survivorship essentially means that if one of the co-owners dies, their interest in the property goes to the surviving tenants.
3. Community Property
This type of co-ownership is typically for married people or domestic partners. For example, if one person individually purchases a property, that purchase becomes the property of both married couple and domestic partners equally. Each owner will have the right to will their portion of the ownership upon death.
4. Community Property with Right of Survivorship
This type of co-ownership is similar to Community Property, however, upon death it has the benefit of the right of survivorship, which essentially means that if one of the co-owners dies, their interest in the property goes to the surviving tenant.
One of the biggest risks of home co-ownership is that you could end up owning portions of a property with people you never agreed to own property with. Such is the case with Tenancy in Common, which allows for co-owners to sell, lease or will their portion of the property to others.
There can also be the issue of a capital gains tax that must be paid upon the death of a co-owner who wills the property to someone else. If the person who is willed the property cannot pay the gains tax, then there may be difficulty in legally taking control of said property. This will no doubt create some complications within the legal realm.
On a more day-to-day level, problems can also occur with regular expenses, such as upkeep cost, monthly utility bills, property taxes, and home owners insurance. It is important to make it perfectly clear exactly how these expenses will be paid.
To avoid any disagreements, complications, and/or misunderstandings, it is wise to have a contract or signed agreement in place discussing how the responsibility of expenses will be handled and what happens if one owner wants to sell, lease or will their portion of ownership.
It is helpful to have co-ownership in the case of partners or marriage. Doing this assures one partner that they will be able to live in their home, even after the potential death of the other partner. The entire property ownership simply reverts to the surviving spouse without any of the typical documentation required to transfer title from one person to another.
More commonly, co-ownership is a way for multiple people to purchase a property they would otherwise be unable to afford on their own. Continuous rental payments can be a drain to many people, often preventing them from being able to collect a sufficient down payment and taking that initial step into home ownership. By pooling your finances, in terms of an initial down payment and future mortgage payments, owning a home can become a reality much more easily.
Home co-ownership can be tricky option to navigate. You will find that there are both drawbacks and advantages to it, depending upon your situation. Before you enter into any kind of home co-ownership, consult a local real estate agent and/or a real estate attorney. You can also ask anyone you are thinking of entering into co-ownership with to do the same. Do your research and carefully weigh the pros and cons. Only then, should you actually proceed with entering into the co-ownership of any property.
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