Co-owning a vacation home
Most people have the dream of owning a vacation property at some point in their lives. Whether you want to be at the beach or in the mountains, owning a second home may sound romantic and exciting, but it comes with a price and generally a really big one.
Once the domain of married couples or family compounds, more and more homebuyers are discovering the advantages of teaming up with a friend or relative to buy a house. Since in 2013, the sale of vacation home sales rose almost 30 percent, it’s obvious that this market is expanding especially in the South where 41 percent of those purchases where made.
The price of second homes is rising, and it’s becoming harder for individuals to put together the cash necessary to buy one on their own. In addition, the cost of maintaining a vacation property compounded with adequate vacation time to use the property is driving the culture of partnerships for the purchase of vacation homes.
So what’s involved and how do you organize this kind of partnership, which is really akin to a marriage with the same risk of failure and battles? First of all, who you choose to partner up with is essential, even your best friend or twin brother may not really be thinking the same way as you. These are some of the key issues to get settled way before anything is signed:
Naturally, the budget. What price range fits your financial needs? Assuming you have already agreed on location, the decision needs to be made if the property will be used strictly for the principals or will it be offered for rental to defray some of the operating costs. Are you purchasing a single family home or a vacation condominium? Condominiums are easier to manage since most of the maintenance is taken care of at a set price, but single family homes can be overseen by a property manager as well.
How will the property be deeded? It's an important point which requires input from an attorney as to the best way to handle this, i.e. tenants in common or joint tenants. Many properties are held in a limited liability corporation, which keeps the buyers’ personal finances separate from the property. Either way, a separate bank account to handle the property expenses should be established so there are no co-mingling of funds.
What about usage? Is there a set schedule or are you going to try and adjust the schedule based on vacation availability, kids’ school schedules and seasonal weather? Will owners have specific responsibilities, who’s the bookkeeper and who calls the plumber or electrician? And maybe the most important is what happens when one person wants out or the relationship just isn’t working? Having a formal co-ownership agreement will eliminate the need to hash out what to do at an emotional time.
Finally, the more people in the partnership the more room for problems to arise. Buying a million dollar property on the beach with five couples may sound wonderful, but when have you ever found 10 people to agree on anything including where to have dinner? Sometimes less is more, and the two-bedroom cottage a block from the beach with one partner may really be the best choice.
Co-owning a vacation property is more like navigating a corporate merger than successfully sharing your crayons in kindergarten. But having cocktails on the beach in February with your best friends may make it all worth it.