Today we’ve been looking at all the ups and downs and in and outs buying a second home in today’s real estate market. I want to leave you with a thought a few thoughts about buying a second home with family or friends.
Many people do it.. Because they find a great spot and they really want to buy a house but they can’t quite swing it on their own. So they go in on it with members of their family or good friends. It happens all the time and it’s a great way to get your foot in the door of a second home. Not sure if you do that you will have to qualify for a mortgage as a team, you’ll have to share the down payment and the closing costs, and you’ll all be on the deed most likely.
But let’s fast-forward now to what happens after you and your family or you and your friends get the keys to this new second home. Because there’s a lot of detail involved and a lot of things you’re going to have to work out. If you think it through ahead of time and put everything in writing you’re going to be in really good shape. But if you just kind of wing it and don’t really plan out how it’s all going to work, you might be in for a rough road. So let’s take a look at that.
First of all you are second home is going to have recurring expenses, and also unexpected expenses. Most people would just agree to split the recurring expenses like the mortgage and utilities and the taxes and the HOA fees if there are any. And quite commonly people would also share the unexpected expenses like replacing a refrigerator, or putting a new roof on the place.
And that’s great if it happens exactly that way.
But in the real world things happen. And things happen to people’s finances. And so you might want to talk with the people who are buying the place with you, about what happens if one of you experiences a drop in income. If that were to happen and the other party could not meet their responsibilities, those monthly bills might fall squarely on your shoulders. Now if that’s okay with you then there’s no issue. But if it’s not okay, or if you can’t really afford to pay the whole set of bills every month, then there will be a very big issue. So you’re going to want to talk to your coat investors about what happens in that scenario. And here’s one of the bigger questions. If they cannot meet their responsibilities, and they cannot pay their share of the monthly expenses, will they still be able to use the place?
That’s a tough issue but it’s better to face it now, when you’re planning out this purchase, then it is down the road if it were to happen.
Another question is if their financial difficulty were to happen and it were to be extremely serious, what about selling the place? Now sure if you all agree that you need to and there’s no debate then fine. But what if you want to keep it? And what if they desperately need the money from a sale? Well depending on the type of title you hold, your coat investors might be able to sell just their share of it. And in that case you might end up sharing your vacation house with people you have never met before. And that’s a big issue right there.
Or if they cannot sell just their share, and if they’re truly in Desperate Financial Straits, they might have to force a sale, in which they go to court and sue you to make you sell the place.
So again Usually this type of thing does not happen but if it does it’s good to have a plan in place before you’re all of a sudden in the middle of a crisis. Now one more thing what about the unexpected expenses? If the refrigerator breaks, who decides what refrigerator to buy? Will it be a Bargain Basement model? Or a $4,000 smart refrigerator? That’s actually not very difficult to work out, but again it’s just a good idea to think these things through before you are suddenly confronted with that situation.
And finally make sure you very carefully work out all the scenarios of who uses the house and when. For instance if you have bought the house along with a family with lots of kids, can those kids use it anytime they want? And also what if your co-investors toss the keys to some friends who have dogs. Are you okay with a family with two dogs staying at your vacation house for a week? If so great. If not, you need to address that.
And what about business acquaintances? If your co-investors want to let a business associate use the property, can they? Or should it just be reserved for family?
The bottom line here is that first it’s a good idea to develop a calendar for who uses your new second home. And second it’s a good idea to develop some guidelines about who can use it when it’s their turn.
Now as you can see I have listed a lot of questions for you to consider if you buy a vacation house with family or friends. It’s a really good idea to just talk through every one of these issues. And to put what you agree in in writing. Because many of the successful families who have purchased a second home together do exactly that and they find that it works beautifully because every time there’s a question they just say let’s look at the agreement. Yes the fact is it works. Lots of people buy second homes with family and friends and you can get to own.