Tenants In Common
Ever sit around with your snowboard buddies and talk about all pitching in to get a place in Tahoe? How about with your hiking friends, ever think about owning that second home in the Catskills of upstate New York? What about that group of friends who always go to the same lake in Lake County California? In recent times it's becoming more and more realistic to think about owning a second home in a destination that you travel to often. With prices becoming more reasonable and properties opening up at a record rate, now is the time to pitch in and get that group property. Important things to consider regarding group purchasing of a second homes are location, price, and the constraints of those involved.
A tenant in common ownership is made up of two or more parties that have an undivided interest in a property. Tenants in common ownership may be done through a will, deed, or other document of title. Many tenants in common tenure arrangements are done through inheritance in which the testator's will leaves property to intended heirs with or without specifying the size of interest that each is to receive.
A tenants in common ownership interest can be purchased, sold, gifted, bequeathed by will, or inherited, and is subject to property taxes, gift tax, estate and inheritance taxes in the same manner as any property held in fee simple ownership. Upon the death of a tenant in common, his or her interest in the property passes through inheritance as directed in the will or other estate planning documentation and does not divide among the other owners as there is no right of survivorship - an important difference from joint tenancy ownership.
Another element to consider is that tenants in common investments are very illiquid. There is almost no secondary market outside of the co-owners for selling fractional interests, though that could change if the tenants in common become more general. Investors also should watch for potentially high fees charged by exchange intermediaries that could all but wipe out the tax benefits.
Before getting into tenants in common, research other options with a financial advisor. For example, it might make more sense to just sell the property, pay any taxes owed and buy new property. If you want institutional property, a real estate investment trust (REIT) may be a wise choice.