Owning Land With Others
March 01, 2011
Let's face it: In these tough economic times, it's harder to find the money (and the justification) to buy recreational property.
At least that's what the practical side of me keeps saying. But the outdoor- loving dreamer in me is thinking, "Tough times can mean great bargains, and there's never been a better time to find a way to buy some land."
The operative phrase here is "find a way." Today's economic climate has prompted many aspiring landowners to consider partnering with hunting buddies, family members or friends to pool financial resources, reduce potential risk, and buy land, even if it is only a partial share of the ownership.
That's not a bad idea. But before you take that leap, there are some important considerations to keep in mind. I am not a lawyer or an accountant, and I am in no way offering up advice to replace that of professionals, but what I can offer are some issues to think about and discuss with your CPA, lawyer and potential partners.
Concurrent land ownership can exist in several ways: multiple names on the deed, limited partnerships, limited liability companies (LLCs), and corporations. There may be others, but these are the most common.
There are three basic ways to have multiple names on a real estate deed. Two or more people can jointly own property through special forms of ownership called joint tenancy, tenancy in common, or tenancy by entirety. In joint tenancy, all owners have equal and undivided shares of the property. Joint tenants also have the rights of survivorship, which means that if one of the joint tenants dies, that share is transferred to the remaining owners. Tenancy in common, on the other hand, allows for unequal shares and may not include rights of survivorship. Tenancy by entirety is a special form of ownership specifically for married couples.
Limited partnerships and LLCs offer individuals a way to jointly enjoy the ownership privileges of a property through fractional ownership of an "entity" which ultimately owns the property. Both entity types have their pros and cons. Setting up a corporation to own property is my least favorite choice. It can be expensive, require too much work, and create some undesirable tax consequences.
READ: Understanding How To Evaluate Land For Purchase
There are specific situations where any of these ownership models can be either right or wrong, depending upon the individuals involved, state regulations, and your specific goals and objectives. Your CPA and a good real estate attorney can help you decide.
Beyond the ownership structure, buying land with a partner or multiple partners comes with its own set of risks and rewards. I have often said that any partnership involving more than one person is doomed to fail. My reasoning behind this position is pretty simple: People who agree today might not be able to agree tomorrow.
It's not a big deal when you and your buddies change your mind about whose home will host your Super Bowl party. But when the decision involves selling land, cutting timber, building food plots, sharing costs of maintenance, guest policies, paying for utilities, or any number of other things, the consequences of disagreement can be devastating on both your wallet and your friendships. In my opinion, the biggest mistake most people make in these situations is failing to plan for disagreements.
The key to successful long-term land partnership is to recognize that problems will indeed arise, and you need to have a written plan in place to manage those changes. In short, you need to decide, while you are all still in agreement, how you will make decisions when you don't agree.
Don Webb is the author of "Maximizing The Land Ownership Experience" and president of Greenwood Land Company, which provides land acquisition and consulting services. Contact him at (706) 575-4178 or go online to www.greenwoodproject.com.