It’s fun to read stories about wins and losses in the real estate game. It’s motivational and entertaining, but sometimes it’s more important to learn some very practical information every real estate investor (or even a home buyer) should know. Here are ten essential terms to know.
Types of Interest in Land
1. FREEHOLD: Owning a freehold property means you have the right to use the land for an indefinite period of time and, subject to any bylaws or restrictive covenants, may do what you wish with that land.
2. LEASEHOLD INTEREST: Owning a leasehold on a piece of land gives you the right to use the land for a certain period of time. The owner of the leasehold may sell the land, but the new land owner will be subject to the terms and conditions of the original lease.
Owning Property
3. JOINT TENANCY: Typically how you would own the home you live in with your spouse, as it has the right of survivorship which means if one of the owners dies the other immediately is given the other person’s share of the home. Interest is undivided but equal in this ownership type.
4. TENANTS IN COMMON: This is how my husband, Dave, and I own most of our properties together as it allows us to specify the percentage amount of ownership, and it does not carry the automatic right of survivorship. For investment properties this makes a lot of sense because you may not want your partners to automatically get your share of the property if you pass away. For example, Dave and a partner M.M. have bought properties together as Tenants in Common. If Dave passed away, he’d likely want his share to pass on to me or his family, not necessarily to M.M.
If you are putting in unequal amounts of money into the investment you may want the ownership percentages to reflect this. For example, early on in our relationship, we bought property where Dave did 100% of the work on the deal and put up most of the money. We own this property together as Tenants in Common with him owning 60% of the property and me owning 40%. At tax time, he claims 60% of the income and expenses and I claim 40%.
Terms you will see in a Purchase and Sale Agreement
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About the author of this article:
in eight years my husband and i have built a multi-million dollar real estate portfolio in our spare time with minimal cash resources. we publish a free monthly newsletter to help other rookie real estate investors achieve their real estate investment goals. click here to sign up for our free monthly newsletter or read some of our past success stories and tips for the beginner canadian real estate investor.
