Investing With a Tenants in Common Agreement

A person who is interested in investing in real estate with other parties should learn as much about real estate on their own as possible.  Knowing the many technical terms that will be thrown around during these types of transactions is important so an investor knows where they stand on a property.  Tenants in common is one of these terms to understand. It is a legal term that describes a property that is owned by multiple parties.

Describing the Term

The use of tenants in common is how multiple people can come together to own individual shares of a property.  It is different than a joint tenancy where the right of survivorship comes into play. In the event one of the parties were to die the property would go to an heir instead of to the other owners.  

Using the share of ownership helps to determine the level of responsibility each owner has over the property.  One owner may own a majority share of the property and in turn, they will pay more to purchase the property or have a greater share in costs.  This is all outlined in the tenants in common agreement before a purchase is made.  

Why Use a Tenants In Common Agreement

The main factor that leads people to use tenants in common agreement is to help multiple people invest in a property at once.  As a single investor, their buying power may be at a disadvantage in the real estate market. However, with multiple people looking to invest they will have an easier time obtaining a mortgage to get a property.

Parties do not need to invest equally.  If one party is going to use the property for a majority of the time they can spend the most on the property.  Those that only want the property for a fraction of the year may spend little on the investment and still be able to reap the rewards of being a co-owner. 

Avoiding a Tenants in Common Agreement

Major problems can spawn from a tenants in common agreement that goes wrong.  Three people may come together to equally invest in a property. After everything is said and done, one of the parties may decide it is not a good investment for themselves.  

Without needing approval from the other two owners they can sell their portion of the property to a fourth person.  This fourth person may not be someone the other two owners want to work with, however, they do not have any say in the transfer.

Play It Smart

Never agree to anything that is not in writing.  Any owner can claim to do something and decide later that they do not want to follow through if it is not outlined in the tenants in common agreement.  Any agreements or guidelines that are necessary to make the business transaction work has to be outlined in the documents before signing.  

Buying property with other investors is a good way to invest in better property without needing more money.  It is the way many people start investing and building a portfolio. Even friends who are looking to invest in a vacation home may use a tenants in common agreement to make a purchase.  It is a useful tool if all parties understand their roles and responsibilities to the agreement.