When you see a house for sale in a place like St John or St Thomas, it’s natural to imagine yourself buying it. Owning your piece of paradise, where you can come and enjoy the beautiful weather and the slower pace of life, is an attractive proposition. Property in these places, though, can be expensive and out of many people’s reach.
It’s becoming more popular for groups of people to buy a vacation property together. It allows you to spread out the risk and expense of owning a second home or other vacation property. Buying property of any sort, however, is a financial and legal commitment. Splitting that responsibility with family members and friends has the potential to cause more problems than it solves.
Pros Of Owning With Friends
There are some reasons to buy a property with a few other people. It’s becoming more popular because there are some big benefits to this arrangement.
Less Expense
A down payment on a property is usually expensive and is the biggest upfront cost. When buying with a group, you’re dividing that expense between several people. This can mean that the down payment is easier to meet or that you can afford a larger property than you could on your own.
Other expenses, such as utilities, taxes, insurance, and maintenance can all be split between the partners. This can greatly reduce the cost of owning and using your vacation property.
Easier Qualification
Applying for a loan can be a fraught experience, but it is almost always part of buying a new property. It can be difficult to get approval, and banks tend to have harsher standards for second homes or vacation properties. Splitting the responsibility between different people can make qualifying easier, as it also spreads out the risk.
If you have less than great (or even mediocre) credit, as well, having another person signing can make the process easier and more likely to have a favorable outcome.
Split Responsibility
When you own a home, you handle its up-keep and any emergencies that may crop up. This is true particularly if you own a property that’s in a resort community or otherwise far away from your home, as it can be expensive and difficult to deal with issues. Some problems might require you to deal with them in person, which can cost you in time and money.
Hiring a house manager is an option, but is also expensive. Owning with friends or family means that expense is also split between several people. If an emergency does require someone to manage it in person, there are several people that can deal with it.
Cons Of Buying In A Group
While there are some advantages to owning a property with partners, there are some downsides to keep in mind as well.
Financial Burden
Owning a home is a financial burden, even if you are splitting it with others. The reality is, while you may like and trust your friends and family, you never really know what their financial situation is like. Your share of the cost might be within your means, but you’re trusting that your partners can also afford their shares.
If they cannot, then their burden may become yours. This is the most important thing to keep in mind when you’re considering buying with others. It is a business transaction, and you are entering into a legal partnership with other people. In that sense, your partner’s financial problems may, in some part, become yours.
Unique Difficulties
Consulting a lawyer when buying with partners is a good idea, as there will need to be some issues resolved that do not arise when buying a home solo or with a spouse. Who owns the property, for example, is determined legally by the name on the title. There are a few arrangements that are possible, but it will in any case require a lawyer to sort out the technicalities.
Potential For Disputes
You’re buying with friends and family, so presumably you have some things in common. But no one ever shares every opinion with another person. Buying a property with another person is similar to having a roommate. There will need to be some give and take when it comes to how the property will be furnished and used.
A written agreement should be drawn up, either informally or legally binding, that details rules and regulations allowed on the property.
Tips To Keep In Mind
There are a few things that can make the process of buying with partners easier, but it is important to solve problems before they arise. You should try to anticipate potential areas of dispute and agree on a resolution before you buy the property.
Limited Liability Corporation
A way to make titling the property easier, and reduce the risk for everyone, is to start a limited liability corporation. LLC’s are easy to start and aren’t that expensive. The LLC owns the property, with each of the partners owning a part of the LLC. If financial problems do arise, the risk to each partner is limited to the property.
Schedule Ahead Of Time
Work out who can use the property, and when, ahead of time. A specific schedule, with dates that everyone signs off on, is probably necessary when owning a vacation property with others. It doesn’t have to be rigid, and there can be trading of time and shared use. But, having a schedule can keep arguments from cropping up.
Keep Track Of Your Stuff
Even if the property comes furnished, you’re going to be bringing sports and recreational equipment, and other items to the property. Keep an inventory of what is owned in common and what is owned separately, and keep the inventory up to date.
When You Want Out
If you’re buying the property as an investment as well as a vacation property, you’ll want to have a good idea of when you’re selling. Are you keeping it for a set number of years, and then selling? If the property reaches a certain value, will you sell?
Even if you’re planning on keeping the property long term, there should be an agreed upon process for one partner to sell their share of the property. People run into financial difficulties, or they may find they don’t enjoy the arrangement as much as they thought they would. A process that allows them to exit the partnership should be thought out and agreed upon as well.
On paper, the disadvantages and potential for problems may seem to outweigh the positives. However, it’s important to remember that you are talking about your friends. If you’re even considering such a big decision as buying a property together, you probably trust and like them. Forethought and planning can prevent issues that might arise, and keep everyone on good terms. The point of a vacation home, after all, is to have a place where you can go and relax, away from your day-to-day problems. It should relieve headaches, rather than cause new ones.