Here are a few things to keep in mind so your dream vacation home doesn’t turn into a nightmare. by Vera Gibbons, Zillow Blog.
If you’re in the market for a vacation home but are looking to minimize costs as real estate prices rise and you face a stagnant paycheck, you might be considering going in with trusted friends or family members. Assuming you go that route, here are a few things to keep in mind so you don’t turn your dream house into a nightmare.
Decide how the property will be used
Conflicts will arise if you approach the purchase of this second home with different assumptions. For example, one party may view the home as a money-making rental unit and may be fixated on its investment potential; the other side, however, may think of it primarily as a lakefront vacation spot for all to enjoy. For a house-sharing arrangement to succeed, you’ve got to be in agreement as to how this property will be used — in advance.
Put business before pleasure
Just because everyone gets along and is compatible doesn’t mean there won’t be conflicts down the line. To avoid possible disagreements (and keep the relationships in tact) consult with your attorney to draft an ownership agreement that specifies when each co-owner gets to stay in the house and how you’ll share costs and responsibilities. While how often you get to use the house is generally determined by how much money you put in, creative arrangements can work, too. After all, each situation is unique, but you will need to agree – not only on how and when you can use the house, but perhaps more importantly, how you’re going to handle the big-ticket expenses (mortgage, taxes, insurance, utilities) as well as minor repairs.
Consider an LLC
We’ve all heard the horror stories: An owner loses his portion of the home when a co-owner defaults on the mortgage; one homeowner dies, and that person’s portion of the investment goes to a co-owner rather than to the deceased owner’s relatives; there’s a lawsuit, and someone loses his/her stake in the property. The best way around these types of issues — and others — is to buy the property within a limited liability corporation, or LLC. Consider setting one up. It’s relatively inexpensive to do.
Have an exit strategy
Any sense as to how long you both plan to keep the property? What happens if one of you becomes financially strapped and can’t keep up with payments? Might you sell the property one day, and if so, under what circumstances? Can you sell to an outsider? How will pricing — and payouts — be determined? Could you prevent a sale by buying out your partner? An exit strategy is essential.
Posted by Scott Freerksen “The Lake Guy”