Whether you’re a first-time home buyer, an experienced investor, or simply looking to diversify your portfolio, co-ownership is becoming an increasingly popular option for those seeking to invest in real estate and properties. By pooling resources with other investors, a co-ownership agreement can offer significant advantages over traditional real estate investments.
Cost Savings Through Co-Ownership
One of the primary benefits of co-ownership is cost savings. When multiple people partner together to purchase a property, they reduce the financial risk associated with single ownership and spread-out upfront costs like closing fees and down payments. This eases the burden on each individual owner, allowing them to make larger investments without having to shoulder all the responsibility themselves. Additionally, by sharing the cost of maintaining and managing the property, each owner can save money that would otherwise go toward property upkeep.
Tax Advantages of Co-Ownership
In addition to cost savings, co-ownership often offers tax advantages as well. By splitting ownership among multiple individuals or entities, investors may be able to take advantage of certain deductions that wouldn’t otherwise be available under single ownership structures. Furthermore, when one owner leaves or sells their share in the property, any taxes due will likely be lower than if they had owned the entire thing outright. Lastly, some owners may even be eligible for tax credits if they choose to rent out any part of their property.
Risks Involved with Co-Ownership
Of course, it's important to note that there are risks involved with co-ownership as well. If one owner becomes delinquent on their payments or fails to uphold their obligations under the agreement (such as taking care of repairs), then all the other owners may suffer as a result. As such, it's essential that all partners carefully consider who they choose to enter into an agreement with before signing anything binding. It's also important that everyone involved understand how profits will be distributed and how decisions will be made about future developments or changes in ownership structure before moving forward with a deal.
Co-Ownership Structures in Real Estate
There are a two co-ownership types that are widely used in Ontario today:
Joint Tenancy in Ontario has risen in popularity over the last century, but what is it exactly? When more than one party agrees to complete a purchase of a property, that is part of being considered a Joint Tenant. In a Joint Tenancy Agreement, the parties evenly share the profits, while splitting the expenses in a legal document. This concept follows the 'right of survivorship' in which when one of the tenants passes away, the other tenants split the profits and costs evenly, which is considered a key advantage.
Tenants in Common
Within Ontario, Tenancy in Common is another popular type of property ownership. Similarly to Joint Tenancy, multiple parties assume ownership of a property. The key difference is that each party agrees to an equal ownership agreement in which each co-owner has an alllocated share of the property. In terms of the Tenants in Common Rights, there is no principle of 'right of survivorship' and the tenant's share is distributed based on the deceased owner's will.
Joint Tenants vs Tenants in Common
Depending on the scenario, Joint Tenancy and Tenants in Common are based on the preference of the involved parties. Each form of proper ownership have differing structures, legal implications and pros and cons. Let's take a deeper dive into each of these co-ownership types to narrow down which may be the best option for you.
Choosing between Joint Tenancy and Tenants in Common::
When comparing the Co-ownership structures of each type, joint tenancy provides its co-owners with equal access to co-ownership, benefits and liabilities, it could be considered a more straightforward option. On the contrary, Tenants in Common can be considered easier to work around, given that ownership percentages can be allocated as required. Along with this, based on if the co-owners require the 'right of survivorship', Joint Tenancy may be best suited as it offers a higher protection level against the creditiors of a co-owner that has past away. Otherwise if the 'right of survivorship' is not required, then Tenancy in Common may be a better fit of co-ownership, as creditors have more direct access to the individual share of the co-owner that has past away. In terms of property control, Joint Tenants have an even level of control and decisions are made collectively. On the other hand, in a tenancy in common, co-owners have varying levels of control and they can made decisions based on their own best interest. Assessing these co-ownership risks and contrasting them to the benefits is the best way of deciding what is best between multiple co-owners.
Severance of Joint Tenancy
When observing the severance of Joint Tenancy process in Ontario, also known as converting from a joint tenancy into a tenancy in common, there are three methods that are utilized most frequently. The first of these methods is through a Land Titles Conversion Application, which can be completed at the Land Registry Office. The Servance of Joint Tenancy form can be completed by one party that intends to convey the sever notice to the other parties or it can be mutually agreed upon and then signed by all the parties. Once completed, the Application must be directly submitted to the Land Registry Office. A method that is less complex is the Declaration of Severance method. In this method, one of the joint tenants must indicate their willingness to sever the joint tenancy. In this method, a document with regulations is agreed upon and witnessed by all co-owners. The last method is by transferring the property to a third party such as another organization or trust. In this case, the co-ownership of the property is passed over to the new organization/trust including the benefits and liabilities. Each Joint Tenant has a right to sever and initiate the process.
How you can mitigate the risks of Co-Ownership
With co-ownership gaining major traction due to its cost benefits along with the consistent rise of the cost of selling a house across the country, it could be a considerable solution for first time home buyers in Canada. Overall, the benefits of co-ownership can be substantial if the partners establish trust both financially and allocate duties for property development. It is also essential for all owners of the property to establish an agreement of purchase and sale (if property is sold). This is so all parties are not blindsided by a decision that is only partially agreed on by one/a fraction of the owners.
As you can see, there are both risks and rewards associated with co-ownership in real estate investing. Before deciding if this type of arrangement is right for you and your partners, it's important that you do your research and understand all the legalities involved so that you can make an informed decision about whether this type of investment strategy fits your needs and goals best. With careful planning and thoughtful consideration on everyone's part, co-owning a property could prove very beneficial for all parties involved! To learn more about co-owning a property, reach out to Zown today! To view 'houses sold near me' that may be suited for co-ownership, try out our AI Valuation tool, free of charge.