Purchasing a second home is a milestone that most adults don’t accomplish. For some, the dream of owning a second home to use as a vacation rental becomes possible by partnering with friends or family to share in the mortgage and responsibilities.
Jointly purchasing a home with a loved one has the ability to become one of the best or worst financial decisions you make. Before you start calling realtors, you and your purchasing partner should do these 4 things:
It’s great that you and your friend, sibling, or third cousin have decided to purchase a vacation home together – but are you guys looking for the same thing? If they want a modern home in the mountains and you’re looking for a fixer upper near the beach, you’re bound to run into trouble as you start touring homes. Take pen to paper – write out what you’re looking for in a second home and ask your loved one to do the same. Compare notes and decide where you’re both willing to compromise, if at all.
Things to be on the same page about:
When you have a lot of money on the line, you want to make sure that your assets are going to be protected. Meeting with a lawyer can help you and your co-buyer decide which form of ownership makes the most sense given your arrangement. There are two types of tenancy you can have – 1.) Tenants in common 2.) Joint tenants with right of survivorship. Each type has its own benefits and drawbacks when it comes to ownership and inheritance. Your lawyer can also help you draw up a written ownership agreement. This can cover things like how the home will be used, what percentage of a stake in the home each buyer has, and who is responsible for maintenance.
Purchasing a second home with someone is a huge risk that has the ability to be a huge reward. Being transparent about your financial situations – like what your credit looks like and how much you’re each able to contribute – will prevent any confusion. Knowing where both parties are coming from can prevent any surprises once it’s time to close on the home. Additionally, agree to keep each other informed if your financial situation changes over the years.
Two of the most common reasons people purchase a second home are to have a vacation home and to use the home as a short-term vacation rental. You and your co-owner set expectations for the home. For example – if you jointly purchase a beach house and you want to use the home strictly for income but your co-tenant wants to use the home for personal use every weekend during the summer, you might run into issues down the road. Discuss revenue goals, personal use of the home, and let the other buyer know what they can expect from your end of the bargain.
The journey you’re about to embark on as a second homeowner is exciting, and when approached with caution, can be such a rewarding experiences. Taking the time to be open with your purchasing partner will set you both up for successful years of second home ownership and vacation rental management.