Buying a vacation home with friends can be a good idea. Splitting the purchase — and ongoing maintenance costs — with another party can make second home ownership more affordable. And it may put a more luxurious property within your reach. Buying with friends may also help justify the purchase, since a vacation home with multiple owners will likely get used more weeks each year than properties owned by an individual or a single family. Plus, co-owning allows you to share the workload of owning and maintaining a second home. But just because it may make financial and logistical sense to purchase a vacation home with friends doesn’t mean it’s a seamless process. Buying a home with friends can be a high-stakes situation, as there are large sums of money involved — and even higher expectations. Read on for tips to find success when buying a second home with friends.
The first step in the process is to make sure all would-be owners have the same goals. You’ll need everyone to align on location, home type, budget and amenities. Take the time to create a combined wish list that takes into consideration everyone’s preferences. Don’t be afraid to get into the details: What’s the preferred architectural style? How far from the beach/ski hill/downtown are we willing to be? Do we want to rent out the home when none of us are using it to generate income?Make sure to iron out these big decisions before you begin your home search. It’s important to go into home shopping with a clear set of criteria. And remember: Everyone will need to make compromises to keep the process moving forward.
2. Evaluate finances
Many people are uncomfortable talking about money with people outside their immediate family, but it’s an absolute must if you’re considering making a real estate investment with friends. Sit down with all potential owners for a conversation about ideal purchase price, down payment size and credit scores. You’ll also want to make sure everyone has stable finances not only for the initial purchase but also for covering ongoing costs and monthly mortgage payments for years into the future.
3. Have the tough conversations
Take the time to ask each other hard questions about how and when the home will be used. Here are a few questions to get you started:
How will we manage scheduling? Who gets to use the home on holidays and school breaks (if applicable)? What if one owner uses the home more than the others?
Will we allow owners to bring guests with them?
Will we allow owners to bring pets?
Do we want to rent out the home when none of us is using it?
What will we do if one owner wants to sell or can no longer afford the home?
How will we decide when to complete maintenance?
4. Assign tasks
Owning a second home — especially in another city, state or country from your primary residence — can be a lot of work. Luckily, owning a home with friends means you can share the responsibilities. Before purchasing, make plans for who will take care of specific tasks. You might assign one person to take care of paying the bills, like the mortgage, utility bills and insurance, while someone else might take care of overseeing vendors like house cleaners, landscapers or property managers. Considering renting out the home? You might assign one person to oversee this portion of the work.
5. Create a co-ownership agreement
Protecting yourself legally is an absolute must before investing in real estate with friends. It’s always worth the time and expense to hire a real estate attorney who can draft a co-ownership agreement that all parties sign. These legally binding contracts establish an ownership structure for the purchase. There are multiple options available, including tenancy in common and joint tenancy. Tenancy in common allows different owners to divide stakes in the property, whereas joint tenancy is meant for owners who want to share equal stakes. There’s more to these ownership structures than just the shares of ownership, so be sure to evaluate your options with a lawyer. In addition to defining the ownership structure, a co-ownership agreement can establish an LLC, help you set aside a pool of money for ongoing maintenance and outline what happens in the case of death, divorce or major disagreements.
6. Find the right home
Now comes the fun part: house shopping! Hire a real estate agent who has experience both in your target market and with friends buying together. Provide your agent with your predetermined wish list and find a time when all parties can travel to the destination to tour homes in person. After each showing, have an open conversation about pros and cons to narrow the options. Remember to pack your patience. It may take some time to find a property that fits everyone’s wants and needs.
7. Keep the lines of communication open
Good, honest communication among owners shouldn’t end as soon as you receive the keys. Home ownership is an ongoing responsibility, so stay in contact with your co-owners so you can decide on things like vacation dates, maintenance needs and home improvements. And don’t forget the fun stuff. Be sure to share tips and tricks with your co-owners, whether that’s the great new restaurant they won’t want to miss or a local hiking trail you discovered on your last visit.
Pacaso: Fully managed co-ownership
However, it can be a challenge to find a friend (or multiple friends) who share the same second homeownership and financial goals. But that doesn’t mean co-ownership is out of reach. Pacaso makes it possible to become the co-owner of your own luxury second home, but without having to do everything on your own. We’ll find trustworthy and vetted co-owners, facilitate the creation of a co-ownership agreement and LLC, and manage all the details of ownership including property management, home design and maintenance. You just get to arrive, unpack and enjoy life in your professionally furnished vacation home. You’ll find Pacaso second homes in swoon-worthy destinations from California Wine Country to Colorado ski destinations to Florida beaches and beyond.
