Smart Buying

A Family-Friendly Vacation Home

When teaming up with relatives or friends to buy a retreat, put business before pleasure.

By Thomas M. Anderson, Associate Editor

From Kiplinger's Personal Finance magazine, January 2006

As the median price of a vacation home approaches the $200,000 mark, it's tempting to consider inviting family members or friends to help you swing a deal. Not only do you know and trust them, but you also wouldn't mind spending a week in their company.

But a partnership to buy a vacation home can easily turn sour -- as Brett Matthews discovered when he invited his best friend from high school to go in with him on a condominium in Destin, Fla. Matthews, 38, an industrial-equipment salesman from Atlanta, figured they'd need to invest a total of about $44,000 in cash to buy and remodel the condo, which cost $220,000. But his buddy was chronically late coming up with the money to renovate, so a frustrated Matthews got his friend to buy him out. "I figured that if we had made it this far as friends, we could survive anything," he says. "Nothing is further from the truth."

The key to making a partnership work (and avoiding many an awkward Thanksgiving dinner) is to put business before pleasure by drafting an ownership agreement, something Matthews neglected to do. "Family and friends assume they can work everything out, so they don't face the hard issues," says Andy Sirkin, a San Francisco lawyer who specializes in ownership agreements.

Such an agreement should specify when each co-owner gets to stay at the house, as well as how they'll share costs and responsibilities. Co-owners generally get exclusive rights for specific times, or they pay for the time they use. The agreement should divvy up holidays and peak seasons and spell out privileges given to an owner's family members, friends and guests.

How often you get to use the house is generally determined by how much money you put in. But some co-owners are creative. Chuck O'Neal, 39, a partner in a Laguna Beach, Cal., private-equity firm, paid $850,000 for a ten-bedroom château in the Savoie region of France and spent a substantial amount to renovate the estate, built by Benedictine monks in 1032. O'Neal's parents oversaw the repairs; his dad managed the craftsmen who did the restoration work, while his mother, an artist, helped his wife, Sukeshi, with interior design. In return for his parents' sweat equity, O'Neal drafted an agreement to give them an ownership stake in the property, which is available for rent (www.chateausp.com).

Sweat the small stuff. Drafting an ownership agreement costs between $1,000 and $3,000. In addition to big-ticket expenses, such as the mortgage, taxes, insurance and utilities, you'll need to agree on assessing outlays for repairs and furnishings -- right down to sheets, silverware and shelf liner.

Owen Dykes, a 35-year-old mortgage broker from Atlanta, teamed up with his sister and two friends to buy a vacation cabin in Blue Ridge, Ga., for $295,000. In their ownership agreement -- drafted by one of the partners, a lawyer -- they each agreed to kick in $700 a month toward the mortgage and maintenance, and also stipulated that all co-owners must approve any expense exceeding $300. In addition, the group has veto power over any decorations a co-owner may want to add.

Despite their attention to detail, Dykes and his partners have experienced their share of tension. After two of the partners moved most of the furniture into the cabin, says Dykes, "we had people saying, 'I've driven a U-Haul for the past two weeks to unload all of this. You can at least go to Target to buy the towels.' " That kind of dispute can shred a partnership, says Sirkin.

He recommends putting in writing details that may seem petty, such as who will clean the house and which pets are allowed on the property.

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