Friday, July 08, 2005

Buying a Vacation Home With Friends/Family

Second homes or vacation homes in desirable areas such as the White Mountains of Arizona can be pricey; sometimes more than one party alone can afford. Many people are finding that it's possible to make that dream come true with a little help from friends!

Economics are always better when people find ways to pool resources to achieve a goal-- and buying that gorgeous vacation home is a worthy goal! After all, you have a lot of good times together, may travel together, and hopefully you share the same ideas about lifestyle, home and family. By multiple contributions to that downpayment, and sharing the mortgage, the power of a few is much greater than the power of one. Is it easy? It can be. But, there are some important points to consider:


  • 1. Make a decision about your own financial abilities. Figure out how much are you willing to put down, and how much monthly payment do you can afford to carry. Try to avoid a common mistake when buying with others of using the extra capital to look for a bigger or better house. Don't forget that the reason you are doing this is financial. Avoid "buying up" and aim for what's comfortable for you with a little room to spare.



    2. Think carefully about the people you wish to enter into this arrangement with. Whether friends or family, make sure that you are comfortable with:

      a. Their financial security (and stability). You don't want to be left "holding the bag" with the property your entire responsibility.

      b. Their honest commitment to the project. You want to gauge their ability to be honest and cooperative in the decision making process. No primadonnas, no hidden agendas.

      c. Their true compatibility with you and yours. You may me on the property at the same time; or you will need to work together on future decisions.


    3. Once you've chosen your "posse", it's time to talk about visions, goals, and hopes for the prospective property. Do you want to rent to outsiders? Is this a high-end showplace, a casual relaxed place, a "party place"? What do you all require as far as usage, what kind of rules will be set, if any? Try to sit down and talk about these things in a relaxed way and over time. No snap decisions or simple answers. Try not to turn these discussions into business meetings.

    4. Once you are all on the same page, it’s time to get get down to brass tacks. These include deciding on the legal structure of ownership. A co-ownership, co-tenancy, tenants-in-common, small corporation, etc.? Research and discuss these with an attorney and/or a CPA. Whatever agreement you select must incorporate issues about finances, occupancy and sell-outs. The way you split the mortgage can be creative, based on occupancy, income or equal/equal.

    5. In addition to mortgage payments, there will be many other expenses for the second house-- These could include maintenance, furnishings, management, etc. Put together the very essential yearly budget that you all agree on, so that if certain improvements need to be delayed, it is clear to everyone why you would do so.

    6. The very reasonable concern of buying with others is what happens if one person wants to or needs to get out of the arrangement. Will you give the others the option to sell to someone of their choice? Will you require the buy-out to stay within the group? Any agreement will work; but it must be decided in advance and not at the time of occurrence. Failing to plan ahead for change, and having that plan in place avoids bitter feelings on down the road. People's lives do change, so anticipate and you'll be relaxed and unafraid if and when changes do come along.


  • Once you've done all the hard work, it's time to enjoy the new place, fire up the grill, enjoy that sunset-- knowing that each of you is contributing to the happiness of the others. What could be better?