Different Ways to Hold Title in a Utah Real Estate Partnership
Most people in the real estate investment world don’t have millions of dollars to privately fund a development or management project. That’s when it’s smart to pool the resources of different individuals or entities in a group effort. In some cases, like you would see with a REIT, there may be hundreds of people teaming up to raise the funds. In other cases, like you would see in a general partnership, there may only be two or three people coming together to make the investment.
Before we get into the different ways to organize partnerships its important to understand the different ways to hold title to the property. The first method is called “joint tenancy”. The is the method that will be used between spouses or family members. With this form of ownership, each partners has equal ownership. Joint tenancy also has what’s called The Rule of Survivorship. That means with the death of one of the partners, his/her steak in the asset is divided equally between the other partners.
Holding a valid title to a property as joints tenants required 4 unities. These are unity of interest (each joint tenant must have an equal interest including equality of duration and extent), unity of title (the interests must arise from the same document), unity of possession (each joint tenant must have an equal right to occupy the entire property) and unity of time: the interests of the joint tenants must arise at the same time. If any of these unities are broken, the joint tenancy is invalid or broken.
There is one more thing to note about joint tenants. One or all of the partners have the ability to mortgage their interest in the property. This doesn’t technically break any of the unities. However, if the mortgage is completed, and change of title is complete, it would dissolve the joint tenancy. If one of the 4 unities is broken, it doesn’t end the partnership. The title of the property would simply change from being owned as joint tenants to the next ownership model.
The other more common method for holding title with different entities is as tenants in common. There are several principles of this form of joint ownership that are attractive. First, the share of interest can be broke into as many pieces and as many sizes as needed. This is called holding an individual, undivided interest in the property. The other huge difference is The Right of Survivorship not being in place. That means if one of the partners dies, his/her interest is passed down through the will rather than to the other partners.
Holding title as tenants in common is going to be used in pretty much all standard partnerships. This is by far the more flexible option. However, when family members are looking to join forces on a real estate investment, they may select joint tenancy.
If you’re looking for guidance on organizing a real estate partnership, its usually best to talk with an attorney. If a real estate agent is giving this kind of advice, they can actually get in trouble with the state. While we won’t give advice on technical, business issues, we would love to help you buy or sell your next investment property. W² Realtors is one of the fastest growing real estate agencies in Utah. Please contact us to schedule a free consultation.