Do you dream of owning a beach house or ski chalet? Perhaps you love Disney World but hate staying in a crowded hotel? Wouldn’t you rather relax in your own vacation home?
A vacation home offers luxury, privacy and convenience. But that often comes at a price, particularly in popular locations. One solution: Purchase with a friend or relative.
A joint purchase brings up a host of issues, however—how to finance the purchase, divide expenses and divvy up use of the property. Failing to negotiate these issues ahead of time can turn friends into frenemies.
After agreeing on a property, the first major issue joint buyers face is how to pay for it. Paying cash keeps things simple, but often, buyers will opt for a mortgage. That means both parties need to apply and qualify, and the ultimate decision will be based on both applicants’ income, assets and credit.
Joint buyers also need to decide how to hold title. Do you want to own as “joint tenants with right of survivorship,” where the entire property goes to the survivor if one party dies? Or as “tenants in common,” where the share of the person who died goes to his heirs—which could lead to strangers co-owning your vacation home with you. A limited liability company is a great option because it’s managed by an operating agreement, which governs ownership and usage of the property and the financial responsibilities of each member of the LLC.
If you don’t opt for an LLC, it’s wise to create a written agreement governing use of the property. At a minimum, outline who pays the property expenses, who gets to use the home and when and, perhaps most importantly, the exit strategy in case one party wants out.
Of course, anyone considering the purchase of a vacation home with a friend or relative should consult a tax advisor or attorney first to ensure you are made aware of any contractual details before a deal is made.