Fsbo

Sharing a vacation home seems like such a naturally great idea.

You and a few college buddies or a cousin, sibling or two decide to pool your resources and purchase a ski condo in Park City, a beach cottage in North Carolina or maybe a nice piece of land near a lake in Wisconsin with the thought that in a few years, you can put up a vacation house there.

But purchasing real estate with people you like and/or love can create the kind of problems that end those valued relationships. Dreams of good times, shared vacations and watching everyone’s kids grow up together can be replaced with broken furniture, angry calls about "holiday hogging" and even process servers delivering those headache-inducing lawsuits.

So how can you buy property with others and end up not hating each other? Here are a few tips on how to take advantage of the real estate market with friends and end up staying friends.

No Secrets

You and your potential partners may be close, but do you talk about what’s happening in your lives financially? Have you seen your sister’s credit report? Buying a vacation house together is not unlike going into business together.

If you’re successful now, but embarrassed to tell everyone involved about a judgment levied against you years ago when you couldn’t pay off a credit card, you had better come up with an explanation or decide not to be part of the group. Otherwise, your past might torpedo the attempt to get financing.

Communication Smackdown

Typically in a group that’s looking to buy something, there are one or two people who serve as the troop leaders, doing most of the groundwork and letting everyone else in the group know what’s happening.

With everybody on IM or BlackBerries, there’s no excuse for everyone not to know about a meeting with a realtor or news about whether the loan was approved.

When the principals are hard to reach and money is involved, you get worried, even if they are your brother and sister.

Legalize Your Efforts

No matter how close your group is, if you’re not setting up an entity to purchase the property you’re setting yourself up for trouble.

"Creating an LLC or a trust protects everyone involved, and it can be written so that when one person wants out, the entity stays intact," says Steve Diaz, a San Diego-based attorney.

An entity will also help protect everyone’s privacy, since it’s listed on the title rather than everyone’s names. But make sure the home insurance is in the trust’s or LLC’s name or it could affect coverage in a property loss. Part of the paperwork should specify how maintenance costs are divided and how improvements on the property should be decided.

Share Time

The best-run partnerships are those that are well-planned. If couple A gets the place on July 4th, Labor Day and Christmas, while families B, C and D have to make do with Flag Day and Halloween, there are going to be bad feelings even if everyone agreed to roll dice to see who got the choice vacation times.

A good policy is to rotate holiday weekends and leave hard feelings on the doorstep. Another method that works for some groups is to "weight" the calendar each year, assigning each partner a number of chips, say 100, and count holidays as 5, weekdays as 2, regular weekends as 3. Each family gets to "pay" for the days they use each year.

Finally — do you want to get a group together to buy a place, but the friends or family in your circle aren’t interested? Try telling some realtors and bank officers in your shopping area about what you’re trying to do, and they may be able to help.

"I’m seeing a number of seven-figure homes being sold to fractional partnerships where the partners are strangers going into the transaction. They’re just interested in getting a piece of a beautiful vacation home," says Tom Carr of Leverich & Carr Real Estate in Aspen, Colo.

"The real estate people in the area may know about groups looking for partners, so it’s worth asking around."

By John Morrell

This entry was posted on Monday, July 28th, 2008 at 10:46 am and is filed under FSBO. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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