Property interest (PI), also called ownership interest in a property, is an important concept for investors to understand. You need to know the various types of PI and what each one means. In this article, we cover:
Ownership interest in a property refers to the rights in property of individuals and entities. The topic of property interest encompasses ownership percentage, ownership time period, transfer rights, encumbrance rights, and rights of survivorship.
The two major classes of property interest are:
Legal ownership gives the titled person or entity the right to control, sell, or transfer a property. The legal owner may be different from the person with a beneficial interest in the property.
Beneficial interest gives you the legal rights to live in a property, collect a share of rental income, and collect a share of sale proceeds.
Frequently, trusts allow separate legal and beneficial owners to share the management of a property. In other words, the party with the title holds the property “on trust” for the benefit of another party. In this case, we call the legal owner the “bare trustee.”
A declaration of trust separates legal ownership from beneficial ownership. The declaration specifies how much BO each tenant in common receives.
A sole property owner may want to share benefits with a spouse or other person with no legal property interest. Accordingly, the legal owner can give a part of the ownership interest in a property to a beneficiary. Then the beneficiary can receive a share of sale proceeds or rental income.
Assets America ® can help you purchase or construct a property, whatever the form of ownership. We are a high-end, national commercial brokerage firm, arranging loans starting at a minimum of $10 million. We invite you to contact us for a confidential consultation to discuss your financial requirements. Please call our offices today at (206) 622-3000, or simply fill out the below form for a prompt response!
There are several types of ownership interest in a property. They are as follows:
This is outright ownership by one or more parties with all beneficial rights. We also call it freehold and fee simple absolute. Owners have title to the property, including land and improvements. Short of foreclosure or condemnation, the owner of fee simple property cannot lose his property. Fee simple owners have full latitude when deciding how to use the property.
A property owner can sell a ground lease to a lessee in return for compensation and rent. However, the buyer does not own the improved land, but rather has a beneficial interest for a specified period.
When the lease expires, the land and perhaps the improvements revert to the owner. The lease can restrict the maintenance, use, and alteration of the leased premises. Also, the lease can require periodic rent increases.
If you’re interested to learn more, read our Ground Leases – Everything You Need to Know.
Life estates are beneficiary tenants that have 100% beneficial interest during their lifetimes or the lifetimes of another party. The property owner grants the life estate to the beneficiary tenant via a deed. Frequently, the grantor and beneficiary are the same person.
After death, the property goes to the “remainder” person, who may be the grantor if different from the beneficiary. We can also refer to life estates as life tenants or tenants for life. Beneficiaries cannot sell life properties during their lifetimes. The life estate ends when the beneficiary dies.
The purpose of a life estate is to pass a property to the remainder person without probate. In other words, the life estate is not part of the tenant’s estate. You can use a life estate when the property’s rental value exceeds a lump-sum inheritance.
The remainder person must agree before the tenant can mortgage or sell the property. Typically, the agreement gives the remainder person a percentage of the proceeds. In fact, that percentage usually increases as the tenant ages.
This is a concurrent estate in which all the tenants have equal shares and rights to the entire property. When one tenant dies, the property ownership goes to the survivor, not the survivor’s heirs, and avoids probate.
Frequently, spouses use this method to control the rights of survivorship. In this case, the deed usually specifies the following: “Grantees A and B as joint tenants with rights of survivorship and not as tenants in common.” When the last tenant dies, the property is part of the deceased’s estate. The deceased’s debts attach to the property.
A concurrent estate in which each tenant has rights to a set share of the property. The co-owners may own equal or unequal interests in an undivided property. Co-owners can use a will to specify the transfer to heirs of their property shares after death. For this case, the deed usually specifies the following: “Grantees A and B as tenants in common and not as joint tenants.”
A Tenancy in Common Agreement rather than a deed specifies each co-owner’s usage rights. Typically, TIC co-owners aren’t spouses. A TIC may hold the assets of joint commercial partnership. In all cases, there are no rights of survivorship. When a co-owner dies, the deceased tenant’s property interests go to the named or unnamed heirs.
T by E property laws regulate how spouses share property ownership. The couple’s ownership receives the same treatment as a single person. Some states include domestic partners in this type of ownership. When one spouse dies, the property “ripens” – i.e., goes to the other spouse without probate.
In some states, tenancy by the entirety is the default for married couples. In other states, a deed must specify this type of tenancy. To sever a tenancy by the entirety, both spouses must agree or must divorce each other.
Creditors cannot foreclose on a T by E property unless both spouses have debt judgments with the same creditor. However, in community property states, creditors can seize T by E property due to either spouse’s debts.
Common law requires four conditions (“unities”) to establish joint tenants with rights of survivorship or tenants by the entirety:
If any of these unities break, the property becomes a tenancy in common.
Tenancy by the entirety requires a fifth unity as well:
The joint legal owners can specify a beneficial ownership arrangement. Often, you see this when one party receives a higher percentage of rental income. For example, if Party A has 80% BO, it receives 80% of rental income.
The BO shares of partners has tax implications. You can gain tax efficiencies by transferring BO to the partner in the lower tax bracket.
A court can partition commercial, rental, and investment properties, as well as residences, which are TICs or joint tenancies. Specifically, co-tenants can seek division of the entire property instead of selling one co-tenant’s interest.
The court divides the property into separately-owned portions. A “partition by sale” distributes sale proceeds to co-tenants. Tenancy by the entirety is ineligible for property partition.
Real property is land and any improvements made upon the land, including buildings and other structures. For example, there are canals, roads, ponds, and machinery attached to the land. All other property is personal property.
Perfect ownership, or perfect title, is an ownership interest in a property through a deed without any defects or liens. Other names for a perfected ownership interest include clear, free, or good title. Perfected ownership facilitates the smooth transfer or sale of a property.
A person of interest is either a titled owner or a person with a beneficiary interest. The type of interest determines a person’s rights and privileges regarding property. There are many forms of ownership arrangements.
Typically, you could check with the recorder of deeds to see what the deed specifies. You may also want to review any Tenancy in Common Agreements or other agreements that affect ownership interests. You also need to check title for any liens or defects.
Ronny was a pleasure to work with and is extremely knowledgeable. His hard work was never ending until the job was done. They handled a complex lease and guided us through entire process, including the paperwork. Not to mention a below market lease rate and more than all the features we needed in a site. We later used Assets America for a unique equipment financing deal where once again Ronny and team exceeded our expectations and our timeline. Thank you to Assets America for your highly professional service!
exp MFGroup Great experience with Assets AmericaGreat experience with Assets America. Fast turn around. Had a lender in place in 30 minutes looking to do the deal. Totally amazing. Highly recommend them to anyone looking for financing. Ronny is fantastic. Give them a call if the deal makes sense they can get it funded. Referring all our clients.
Assets America guided us every step of the wayAssets America guided us every step of the way in finding and leasing our large industrial building with attached offices. They handled all of the complex lease negotiations and contractual paperwork. Ultimately, we received exactly the space we needed along with a lower than market per square foot pricing, lease length and end of term options we requested. In addition to the real estate lease, Assets America utilized their decades-long financial expertise to negotiate fantastic rates and terms on our large and very unique multimillion dollar equipment purchase/lease. We were thankful for how promptly and consistently they kept us informed and up to date on each step of our journey. They were always available to answer each and every one of our questions. Overall, they provided my team with a fantastic and highly professional service!
The company is very capable, I would recommend Assets AmericaAssets America was responsible for arranging financing for two of my multi million dollar commercial projects. At the time of financing, it was extremely difficult to obtain bank financing for commercial real estate. Not only was Assets America successful, they were able to obtain an interest rate lower than going rates. The company is very capable, I would recommend Assets America to any company requiring commercial financing.
Assets America was incredibly helpful and professionalAssets America was incredibly helpful and professional in assisting us in purchasing our property. It was great to have such knowledgeable and super-experienced, licensed pros in our corner, pros upon which we could fully rely. They helped and successfully guided us to beat out 9 other competing offers! They were excellent at communicating with us at all times and they were extremely responsive. Having them on our team meant that we could always receive truthful, timely and accurate answers to our questions. We would most definitely utilize their services again and again for all of our real estate needs.
Assets America is a great company to work withAssets America is a great company to work with. No hassles. Recommend them to everyone. Professional, fast response time and definitely gets the job done.
Great experienceRonny at Assets America has been invaluable to us and definitely is tops in his field. Great experience. Would refer them to all our business associates.
We were very pleased with Assets America’s expertiseWe were very pleased with Assets America’s expertise and prompt response to our inquiry. They were very straight forward with us and helped a great deal. We referred them to all our business associates.
Worked with this company for decadesI’ve worked with this company for decades. They are reputable, knowledgeable, and ethical with proven results. I highly recommend them to anyone needing commercial financing.
Top-notch professionalRonny was incredibly adept and responsive – top-notch professional who arranged impressive term sheets.
Assets America helped us survive a very difficult timeAssets America helped us survive a very difficult time and we most definitely give them 5 stars!
Gave me direction to goRonny was very friendly and though we were unable to make something happen at the moment he gave me some direction to go.
Highly recommend them for any type of commercial financingMy business partner and I were looking to purchase a retail shopping center in southern California. We sought out the services of Ronny, CFO of Assets America. Ronny found us several commercial properties which met our desired needs. We chose the property we liked best, and Ronny went to work. He negotiated very aggressively on our behalf. We came to terms with the Seller, entered into a purchase agreement and opened escrow. Additionally, we needed 80 percent financing on our multimillion-dollar purchase. Assets America also handled the commercial loan for us. They were our One-Stop-Shop. They obtained fantastic, low, fixed rate insurance money for us. So, Assets America handled both the sale and the loan for us and successfully closed our escrow within the time frame stated in the purchase agreement. Ronny did and performed exactly as he said he would. Ronny and his company are true professionals. In this day and age, it’s especially rare and wonderful to work with a person who actually does what he says he will do. We recommend them to anyone needing any type of commercial real estate transaction and we further highly recommend them for any type of commercial financing. They were diligent and forthright on both accounts and brought our deal to a successful closing.