Leasing in common is a way for two or more individuals to have undivided shareholding in one property. With this type of real estate, each owner has individual rights and obligations related to ownership. These rights are equal to the proportional proportion of the owner's interest.
Having this type of property interest gives the investor the right to its proportional proportion of net profit, tax benefits and appreciation. The owner treats of a similar way to a simple landlord and receives individual property and title insurance on his part of the property. An owner can also send their interest to any beneficiary after the owner's death.
This type of direct interest in the real estate sector can also be classified as a "type" real estate for 1031 changes, making ITC an important part of the 1031 exchange universe. To protect them from The personal responsibility derived from the ownership of the direct title to the property, most of the investors create limited liability companies (LLC) for this purpose.
One of the key advantages is that each individual investor maintains the ability to express itself in the daily functioning of the property. This authority includes determining when and under what terms the investment will eventually be sold. This contrasts with the ownership of the Statutory Trust of Delaware, where individual investors assign this authority to a third party.
In addition, since buyers are able to group resources, this gives the collective a much higher purchasing power than an individual investor. This opens a wider selection of potential investment properties, with greater growth potential.
Finally, in cases where a tenant in common is offered as a guarantee, the investor also enjoys the benefits of securitized real estate.
Although it is very popular, this type of property also presents a unique set of challenges that any investor must take into account in a preliminary way. Beyond the typical risks associated with investing in real estate, when the property guarantees multiple investors, there is always the risk of conflict or disagreement over ownership of the owner.
Any major decision requires the unanimous approval of all the owners, which can be problematic if fast decisions are required. Although most agreements contain a purchase arrangement to dissolve owners, it is usually not a quick or easy process. The time it takes to resolve disagreements between homeowners can often cause the group to lose out on lucrative sales opportunities.
In the same way, if the property is mortgaged, there is also the risk that a change in the financial status of an individual owner could negatively affect any future refinancing. Unlike the Delaware statutory trusts, when a joint lease contract seeks financing, the lender will examine the individual credit of each individual investor.