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How to Avoid the Downsides of Co-ownership

Co-ownership

Real estate can be a great investment, but it’s not always easy to gather all the money you need to invest on your own. Many people turn to relatives to start a business, and real estate is no exception.

Family-owned businesses are a major driver of the U.S. economy. In fact, about 80 to 90 percent of all businesses in the country are family-owned. Of course, running a business with a relative is one thing; running a business and owning property with a family member is quite another.

If you’re planning on making your real estate investment a family affair, speak to a Miami landlord-tenant lawyer before you get started.

Types of Co-ownership in Florida

Before you buy property with a relative – or a non-relative, for that matter – you should first decide how you’re going to title the property.

There are a few options for co-ownership in Florida:

  • Tenants by the entirety
  • Tenants in common
  • Joint tenants with the right of survivorship

Unless you are purchasing real estate with your spouse, you can’t title your property as a tenancy by the entirety. In Florida, this type of co-ownership is reserved for married couples.

If you choose to become tenants in common, you and your co-owner will each own an equal share in the property, which you can pass down to heirs in your will.

Upon your death, your co-owner retains his interest in his one-half share of the property, but he still has no interest in your half. He can’t sell it or convey it, and his creditors can’t go after your share.

Keep in mind, however, that your co-owner’s creditors can still encumber his share of the property.

You can also opt to own your property as joint tenants with the right of survivorship. With this type of co-ownership, you co-own your property in equal shares, but your co-owner inherits your interest when you die.

Using an LLC for Your Real Estate Investment

Another option is forming a limited liability company (LLC) instead of entering into common ownership. In this scenario, the LLC owns the property.

One of the main advantages of an LLC is the ability to shield your personal assets from creditors. Because the LLC, not the individuals, own the property, their personal assets are protected.

When you create an LLC, you must follow specific steps set forth by state law. Although Florida law doesn’t require you to create an operating agreement when you form an LLC, it’s a good idea to have one.

Your operating agreement gives you an opportunity to define responsibilities and put contingences in place for events that could lead to conflict between you and your family member.

Avoiding the Pitfalls of Joint Ownership

However you decide to title your property, it’s important to be aware of the problems that can crop up when you own real estate with another person.

Creditors: Depending on how you title your property, your interests could be vulnerable to your co-owner’s creditors. For example, a joint tenancy with the right of survivorship does not protect your share of the property from being targeted by a co-owner’s creditor.

Who makes the decisions? Families fight and disagree – it’s just part of being a family. When you own real estate together, however, arguments can quickly turn from typical interfamily squabbling to serious and costly legal disputes.

Managing real estate is a demanding job, and a full-time job in many cases. Make sure you clearly define who is authorized to make decisions about the property and the business.

What happens if someone wants out? Whether you’re investing in a single unit or an entire apartment complex, you need to create a clear succession plan.

This plan should spell out what happens if one person wishes to sell or transfer their interest in the property. Other business succession issues to consider include retirement, unexpected health problems, and disputes among the co-owners.

An operating agreement can address many of these issues if you are creating an LLC.

Get Your Questions Answered by a Miami Landlord-Tenant Lawyer

Owning property can be both exciting and challenging. Prepare for the challenges ahead by speaking to a Miami landlord-tenant lawyer about your property ownership goals.