Have you ever considered buying a vacation home with family or friends? Unfortunately, owning real estate with people you like and/or love can become a major headache if you don't share the same goals and take the time to do some upfront work. Sarah J. Halpin, CERTIFIED FINANCIAL PLANNER™ professional and Vice President-Investments of The Danforth Group of Wells Fargo Advisors has some tips to help you enjoy your vacation home and keep your friends.
The Financial Bottom Line: 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? Have you talked about how you are going to share the ongoing expenses and maintenance that result from home-ownership. 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.
Determine how you want the property titled: When property is held as "tenants in common," each owner has equal rights to possession of the property and any owner can transfer his/her interest independent of the other owners. Moreover, when an owner dies, his/her share will pass to their heirs or beneficiaries. As a result, it's important to discuss how future transfers of ownership interest should be handled. 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. This could increase the number of owners, which can complicate the sharing of expenses and time at the property. Get legal counsel to discuss ownership options and how to avoid potential issues resulting from a sale, divorce or death.
The Gift of Time: An obvious point of future contention is deciding who gets to use the property when. A typical scheduling 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/partner wanting to let their friends or family members use the property during their allotted time without an owner on the premises. You may not want your vacation home to become everyone's vacation home.
Get it in Writing: When you are sitting around the table deciding if purchasing this vacation home is a good idea, discuss all the things that could go wrong and then write down how those issues can be resolved. Any partnership agreement should address as many potential issues as possible, even those that might seem mundane and unnecessary (pets, smoking, décor). As a result, when making this type of financial investment and legal decision, seek the assistance of professional advisors.
Wells Fargo Advisors does not provide legal or tax advice, but we as Financial Advisors are happy to work with your chosen legal and tax advisors to help you achieve your goals. The information provided is general in nature and may not apply to your personal investment situation. Individuals should consult with their chosen financial professional before making any decisions. Investment services are offered through Wells Fargo Advisors, LLC member SIPC.