Checklist:
- Finances
- Compatibility
- Joint vision
- Legal structure
- Yearly budget
- Opt-out terms |
Given the high prices of second homes in the most desirable locations, it’s often tempting to
| Checklist:
- Finances
- Compatibility
- Joint vision
- Legal structure
- Yearly budget
- Opt-out terms |
find a way to do it with others. The economics are always better when you consider people pooling their resources for the down payment, the mortgage and the other incidentals. Is it a smooth road? Well, it can be, with some proper preparation. Here are some things to think about.
1. Make a decision about your own financial capabilities. How much are you willing to put down, and how much monthly payment do you want to carry. One common mistake when buying with others is that with the extra capital you often gravitate to a bigger house, forgetting that the reason you are doing this is financial. So don’t buy up—buy what works for each of you at your own comfort levels.
2. Consider the people that you want to do this with. Whether they are friends or family, you need to be sure that you are comfortable with the following:
a. Their financial stability, so you are not left with the property on your own
b. Their commitment to honest and cooperative decision making process- no hidden grudges wanted in your paradise home.
c. Their overall compatibility with you, as you may be on the property at the same time, or at least working together on decisions.
3. Once you know who you want to buy with, its time to probe deeper: Do you have the same vision and goals for the property .This means asking hard questions, such as do you all agree about whether you will rent it to strangers? Do you feel it needs to be a high-level decorator house, or casual? What are the usage requirements of all of you and how do they mesh? This is best done casually, over time, in informal ways, rather than some formal business meeting. This allows you to back out more gracefully, should you feel it won’t work.
4. Once you are all in sync, it’s time to get more business-like. This includes deciding on the legal structure. For example, will you do a co-ownership, co-tenancy, tenants-in-common, small corporation, etc.? These should all be researched and discussed with a professional lawyer. Whatever agreement you decide on must spell out the ground rules 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 are numerous other expenses for the second house. These include maintenance, furnishings, management, etc. It is essential to have a yearly budget that you all agree on, so that if you need to delay certain improvements, it is clear to everyone why you would do so.
6. The biggest fear of buying with others is what happens if one person wants to or needs to get out. Do you want to give the others the option to sell to someone of their choice? Do you want to require the buy-out to stay within the group. Anything will work, if it is decided in advance. DO NOT leave this open, and then wait for the event. That is a sure road to bitter feelings.
Final Thoughts
Buying property together is somewhat like a marriage… you are in it for better or worse, and prepared to handle the rough spots. You don’t want to lose a good friendship or family relationship because of material disagreements. While love conquers all, it doesn’t always conquer financial disagreements. So get it right before you start.
Once you set it up, all that’s left is to enjoy your new vacation home, knowing that you are all benefiting each other by this cooperative venture.
Do you have personal experience buying a vacation home with others? We'd love to share it with our readers. Send your stories to articles@escapehomes.com.