I am thinking about buying a vacation home with two other people. These are friends I’ve known for years and trust implicitly. Not ‘best’ friends but friends. What things should we consider as we investigate this path?
I don’t know but I have a funny story. H’s father owned property with 4 other men. Years went by and they all decided to sell. One man had died though. They needed permission from all his heirs. His three wives and all their kids, lol. It took a couple of years to round all that up and then they found another child, in a different country! A disabled child who had special legal protections due to his status.
I don’t know how you could avoid all this but surely there’s a way it could be streamlined somehow.
This sounds like a disaster waiting to happen. The partners’ objectives will likely diverge at some point in the future. Expect future disputes over usage, furniture and decoration, and the eventual decision to sell.
H and two friends owned two properties for several decades. They rented it out and had negative cash flow. Eventually they all agreed to sell both properties for a very modest gain for each of them.
Honestly, I think they would have each made more id they had invested in a broad low cost index fund. Buying properties with others can create many challenges to relationships—how to manage and maintain the properties, when to sell, how to share usage, etc. When the property needs to have maintenanc and improvements, how to assess, etc.
Most likely you won’t be friends for long. 
You’ll want to set up a partnership with a comprehensive agreement. Address everything from usage,to maintenance, to the inevitable break up. Get a lawyer to do it. Good luck.
Things to consider and put in your agreement:
- What happens when one party wants to sell - do other partners have the first right of refusal? do you need to approve the new person who wants to buy into it?
- When home improvement is wanted/needed, what’s going to be your process in reaching the agreement? Who gets to decide the decor?
- How are you going to figure out who/when gets to use the property?
- What happens if/when a partner doesn’t pay his/her share of maintenance?
- What’s your policy for allowing relatives/friends to use the property?
- When something goes wrong with the property (water leak, furnace problem…) who is going to take care it?
My brother wanted us to buy a property together and I said no. I won’t even own a vacation property (been there done that) because of all the hassle. I would rather do airbnb or stay at a hotel.
We were offered the opportunity to own a waterfront vacation cottage with family members…and there wasn’t ANY purchase cost.
We declined. It caused a lot of anger at the time from the other family members.
Since that time…ALL of the others have told us that we were the only smart ones by declining. Owning property with others is a headache. And they are sick of it.
Adding to @oldfort what happens when there are grown kids of the owners? And their spouses…and their kids? In other words…what is the line of succession for ownership.
My advice…don’t do it.
It can work but spend the $$ to have a lawyer draw up an agreement. Another option might be to hire a property manager and set up a separate house management fund for taxes, utilities, repairs and maintenance like a mini HOA with both families kicking in xx $$ each month.
Agree that it gets weird once the ownership passes into other hands.
Another thing…adding to @oldfort
In addition to figuring out what to do if something goes wrong…you need to have a funding mechanism in place as well. How will any repairs be funded?
Also, what happens when there are conflicts in the usage calendar? Like…if two families want the same week at the vacation home? And yes…this happens.
And what happens if families use the property for different amounts of time. In our situation, one family used the place many many more days per year than anyone else. It caused some hard feelings that everyone else was laying for her family vacation (think…utilities, etc). So they started using a daily usage fee in addition to the annual assessment which, BTW, has increased exponentially since the property was acquired.
And lastly…if any of you will have college age students…or your heirs will when the assume ownership in future generations…their share of the equity in this vacation home will be an asset on the financial aid forms…probably not an issue for current owners…but it could be for the next or subsequent generations.
I still think if you cover all the details it can work. We owned a boat with another couple and it worked with all the same sort of issues to work out. When we sold it we just split the $$ 50/50 so work out the potential sale situation up front also even if there are no short term plans to sell. Work out a buy out agreement too in case one family needs or wants to sell and the other does not want to sell. You will need to decide if this is a true 50/50 situation even if one family will not use it their entire 50 percent.
I think it’s impossible to think of every possibility that could occur.
For example…if selling is a possibility for each family separately…how do you prevent the sale to folks who you don’t know, or aren’t all that friendly with.
With our family cottage, the biggest disagreements have been the decor…and the maintenance. No one anticipated that some folks preferred pastels while others hated them. Even the types of eating utensils were an issue. In terms of maintenance, the owners sort of all pitched in for years…then they got sick of it. But the decision to hire someone to do things was not an easy one…because that came with a cost. They couldn’t even agree on what kind of fridge to buy when the first one died. Ditto the hot water heater.
The decisions will last a lifetime.
Just don’t do it.
Oh dear Thumper that is unfortunate for sure.
While I agree that there are many ways this could go sour, I have watched a sharing situation work out very well. Up until this past year my parents owned a beachfront condo with 2 other families. Now that my parents are in their mid-80s they realized that they were not able to go for beach weeks the way they once had and came to the conclusion that they needed to give it up. The group made an effort to find another family to take over their 1/3 ownership but were unable to find a buyer. So the other 2 families ended up buying them out according to their original legal agreement. It’s important for every owner to realize that the desires of the others could result in selling the property OR the owner has to be prepared to buy out the others to keep the property.
I think one ingredient for it working so well was having a property manager. They hired a husband/wife team who took care of small repairs and coordinated any other service calls. The wife also cleaned the condo after each stay and the departing family left a check for her. That way each family knew that they would arrive with everything clean and in its proper place. There was also a locked owner’s closet for each family where you could put all your supplies that you didn’t want to be part of the community usage.
This particular condo was destroyed once and nearly destroyed another time by hurricanes. Someone needs to be the point person to deal with all insurance matters. And someone needs to be the group bookkeeper and send out monthly statement to all the owners. They hired a decorator after each storm to refurnish in a rather generic beach theme. Their goal was to have a place to enjoy for a week at a time and not to have a house that reflected their personal design style. And no one placed family pictures, etc around the unit so it never felt like you were in someone else’s place.
By the way, the negative cash flow because H co-owned properties with others delayed our ability to purchase our own place as well. H also had negative cash flow on properties he owned alone that he had to sell so we could buy a place we could live in.
We still co-own an inherited property with H’s brother. Fortunately, we have an OK property manager and positive cash flow. It is NOT a vacation rental and none of us have ever lived there nor desire to do so. When there was a significant expense, we had to collect from other co-owners and pay ourselves. Fortunately that hasn’t happened in some time and there is a significant capital fund to avoid requiring contributions in the future.
My husband’s family had a summer place in upstate NY that was bought at the time by his grandparents and a few siblings. Once that generation passed away, it was nothing but trouble and fighting as the younger generation(s) could not agree on anything. They couldn’t even get a clear title to sell the place, as there were issues with heirs. In the end, they stopped paying property taxes and the property reverted back to the state.
For this reason, I wouldn’t recommend buying property with relatives or friends.
Years ago DH had a rental property in partnership with his cousin which took up much time with tenant issues and maintenance issues and it was a headache… happy to see when they sold the property.
Owning a second property (summer home or rental income property) requires a great deal of time and energy as well as $$$. I can’t imagine the difficulty of having to figure out how to do this and deal with the issues that come up with a group of people.
If you do go decide to go ahead—a good caretaker/property manager is worth it. This is especially true if you don’t live nearby.
People can easily minimize the amount of effort a second property either vacation or rental can take - even if it’s not split.Conversely they can be very enjoyable either as income from rental and retirement income/cash flow or a vacation home. It just isn’t everyone’s “cup of tea” so to speak. Eyes wide open I always tell people. We have both rental and a place we consider only vacation and don’t rent, and the only jointly owned thing was the boat…and it was fun for several years for sure, more than each of us “couples” could have gotten on our own. But boats truly are gigantic money pits LOL, even moreso than properties. After our kids got big and we didn’t need “big”, both of us downsized to manageable runbouts but have many fond memories of the “joint boat.” .