Vacation homes can be costly to purchase and time consuming to maintain in addition to your main family home. This is why realtor.com has pointed out that purchasing a vacation home with friends or family can be a good solution.
While purchasing a primary residence with family or friends might not be such a great idea, a vacation home is quite a different prospect, particularly as many families and friends choose to vacation together and may already regularly rent a place where they can all stay. With a vacation home you can take turns in using the house provided you make sure that everybody gets the kind of dates they want. One thing to decide is whether people will intend being there at the same time or if they will alternate the property’s usage, as most times vacation homes tend to have just a few prime months.
However this approach isn’t without its pitfalls and the article in realtor.com has outlined a few things that you need to do and questions must be asked in order to protect family relations and friendships as well as finances.
The first thing to agree on is how the ownership of the property will be worked out and it’s suggested that it be set up as a limited liability corporation or LLC. Another alternative is to set up a tenancy in common or TIC, but an LLC agreement has more advantages even though it costs a little more to initially set up. This is because under the terms of an LLC, owners are treated as individuals for tax purposes but still have the protection of a corporate liability. The reason why this is a good thing is that someone who is injured in the property has the possibility of suing co-owners under a TIC and with co-ownership you have less control over who is actually allowed in the property. With an LLC there is a much lower risk.
Another thing to bear in mind about setting up an LLC is that it’s often a requirement to create an operating agreement that states everyone’s ownership interests and which will determine how real estate taxes and insurance costs for example are to be divided. This agreement will also determine who will manage the property and how maintenance is going to be carried out and paid for. This gives everyone concerned clear guidelines and will help things run more smoothly. Otherwise even something which is seemingly insignificant, such as shutting up the place for the season can quickly turn into an argument.