Tenants in common explained: ownership, co-borrowing, and how it works for rental properties

If you’re looking to co-own property but want flexibility in ownership and inheritance, tenants in common might be the right setup. here’s how it works, how it’s different from co-borrowing, and what it means for rentals.

What are tenants in common?

“Tenants in common” is a type of property ownership where two or more people co-own a property with individual shares. unlike joint tenancy, where ownership is “all-for-one,” tenants in common is more of a “yours, mine, and ours” approach:

• Individual shares: each co-owner has their own defined share of the property, which doesn’t have to be equal. for instance, one person could own 70% of a property, while the other owns 30%.
• Independent ownership rights: each tenant in common’s share is separate, meaning they’re free to transfer or sell their portion without involving the other owners. they can also leave their share to anyone they like in a will.
• Inheritance flexibility: tenants in common is one of the few ownership types where your share doesn’t automatically go to the other co-owners when you pass. instead, your share can go to a beneficiary of your choice, like family, friends, or even a charity.
• Shared costs and responsibilities: each tenant in common is typically responsible for the property expenses—like taxes, maintenance, and mortgage payments—based on their ownership percentage. so, if you own 40%, you’ll likely cover 40% of the costs.

How is tenants in common different from being co-borrowers?

While tenants in common deals with ownership, co-borrowing is about loan responsibility:

• Tenants in common: this term is strictly about the ownership structure. it determines who owns what portion of the property and gives each person the freedom to do what they want with their share.
• Co-borrowers: co-borrowing relates to the mortgage itself. if you and another person sign onto a loan as co-borrowers, you’re both legally responsible for paying it back. however, being a co-borrower doesn’t automatically make you an owner. for example, parents often co-sign on loans for their children without actually owning any part of the property.

So, in short: tenants in common is all about who owns what. co-borrowing is about who’s on the hook for paying back the loan.

How tenants in common applies to rental properties

Tenants in common isn’t just for people who plan to live on the property; it can also work well for investment and rental properties. here’s how:

• Flexibility for rental properties: tenants in common can own any type of property together, whether it’s a single-family home, a vacation property, or a rental. they don’t have to live on the property at all, which makes this a popular arrangement for investment properties.
• Income and expense splits: with a rental property, tenants in common split the rental income and property expenses according to their ownership shares. if one person owns 60%, they’d typically receive 60% of the rental income and cover 60% of the property costs.
• Separate interests: one huge benefit for tenants in common with rental properties is that each person can decide what to do with their share independently. if one owner wants to cash out and sell, they can do that without forcing the other co-owners to sell their shares. this flexibility can be valuable if co-owners have different goals or timelines.

When tenants in common makes sense

Tenants in common can work well if

• You want flexibility in ownership: each owner can decide who inherits their share or sell their portion at any time.
• You’re buying with friends or family: this setup is popular among people who want to invest together but keep their finances and ownership rights separate.
• You’re investing in a rental property: tenants in common allows for flexibility with rental income and property management, making it ideal for investors who want independence over their share of the property.

How do you get into a tenants in common situation?

Getting into a tenants in common (TIC) setup involves a few straightforward steps, but it’s crucial to plan out the details with any co-owners so everyone’s on the same page.

1. Find co-owners you trust
   whether it’s friends, family members, business partners, or other investors, it’s essential to co-own property with people you trust. everyone’s goals should be aligned, especially around how to use the property (primary residence, rental, vacation, etc.), managing expenses, and deciding on future changes.
2. Decide on ownership shares
   one of the benefits of tenants in common is flexibility in ownership shares. you and your co-owners can each own a different percentage of the property. discuss and agree on how much each person will contribute and how you’ll divide ownership. the shares could be equal, or, for example, 60% for one person and 40% for another.
3. Secure financing
   if you’re purchasing the property with a mortgage, each co-owner might need to qualify individually or as a group. some lenders may allow co-borrowing arrangements where multiple people sign onto the mortgage. remember that co-borrowing makes each person responsible for the loan payments, even if their ownership shares are unequal.
4. Draft a tenants in common agreement
   this agreement is crucial for defining each co-owner’s rights and responsibilities. you’ll want to include details such as:

• Ownership shares and how you’ll split any rental income or property expenses
• Rules for what happens if one owner wants to sell or transfer their share
• Plans for covering taxes, insurance, and maintenance costs
• An exit strategy if anyone wants out in the future, such as offering their Share to other owners before selling it on the open market
• Real estate attorney can help you draft a solid tenants in common agreement to prevent misunderstandings.

5. Set up the title as tenants in common
   when you buy the property, make sure your deed lists each owner as “tenants in common.” this designation is what makes your ownership separate and distinct. if you already own a property but want to convert to tenants in common, you can typically do so with a title change.
6. Plan for management and ongoing responsibilities
   since all tenants in common share in the property’s maintenance, decide how you’ll handle management tasks. for a rental property, you might hire a property manager or agree to split tasks. you’ll also need to decide how to handle expenses like repairs, taxes, and mortgage payments based on each owner’s share.
7. Document your exit strategy
   think ahead about how each person might want to exit the investment. maybe someone will want to sell their share, or you’ll all agree to sell the property after a certain time. by documenting your exit plans in the original agreement, you’ll have a clear roadmap when it’s time for changes.

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.