Have you ever considered buying a vacation home with friends? Unfortunately, owning real estate with people you like can become a major headache if you don’t share the same goals and take the time to do some upfront work.
Here are some tips to help you enjoy your vacation home and keep your friends.
Determine how the property will be financed
You may know your friends really well, but how well do you know their finances? Do they have the liquid assets or will they need to get financing to own a share of this property? Before committing to buying a property with other individuals, it is important to gain assurance that all parties involved are making a financially sound decision.
There is also the question of how you will share the ongoing expenses and maintenance of a shared property. One option is to have partners pay their portion when the expense is incurred. Another option is to have everyone contribute a lump-sum amount to an account, which is then used as expenses arise. You may also need to name a person to be primarily responsible for maintaining the property and paying the bills.
Decide how you want the property titled
Get legal counsel to discuss ownership options and to avoid future potential issues resulting from a sale, divorce or death. For instance, when property is held as "tenants in common," any owner can transfer his or her interest independent of the other owners.
Realize that instead of owning the property with your friends, you could in the future own it with their children or their other family members. So, it’s important to discuss how future transfers of ownership interest should be handled.
Determine when each owner will use the property
Decide who gets to use the property when. A typical method is to assign certain weeks or months to each owner every year and maybe rotate long holiday weekends between the families.
Another issue that may arise is an owner wanting to let their friends or family members use the property during their allotted time. You may not want your vacation home to become everyone’s “crash pad,” so talk through expectations upfront.
Get an agreement in writing
Any partnership agreement should address as many potential issues as possible, even those that might seem mundane (pets, smoking, décor). For example, how are you going to resolve the issue of the pink flamingo mailbox that your friends think is quirky and you hate?
Shared vacation properties are meant to be a fun way to escape the day-to-day grind, not a source of added stress and conflict with the friends with whom you own the property. So, make sure to communicate and document your intentions regarding the financing and property usage ahead of time.
A CFP® professional can help you navigate this process, to ensure that your vacation home – and the details surrounding it – stay a worry-free zone.
A version of this article originally appeared on WCSH6.com