The Perils of Shared Home Ownership By Families and Friends

The idea of buying a vacation home together with friends has plenty of appeal.  Splitting the costs among multiple families makes the financial burden more reasonable.  Shared home ownership can make that desirable vacation home, which would otherwise be unaffordable for any one family, affordable as a group.  Gone would be the days of searching tirelessly for the right rental property, relying on Uncle Bob for use of his lakefront vacation home, or showing up to find that the beach house rental, which looked perfect in online photos, has seen better days.

Despite all the allure of going in together with friends to purchase a vacation home, it tends to be an ill-fated and regrettable decision when all is said and done.  Based on plenty of observation, the multi-family shared vacation home has many more ways to end badly than to end well.

The same potential troubles and more apply to a family home that is left via an estate to children and/or grandchildren.  While grandparents may conjure up beautiful images of multiple generations uniting at a family home for decades to come, the actual outcome tends often to be division of family rather than unification.  Whereas when friends get together to purchase a home, they generally all agree to own the home and may even agree on the ground-rules or the process for future decision making.  In the case of a family home left by way of will or trust to multiple children, there are rarely any preset decision-making criteria which often makes the home a source of conflict from day one .  There are few better ways to create dissension among siblings than for mom and dad to leave a vacation home to their children without any prior discussion about expectations or responsibilities.

The challenge with homes owned by multiple families is that owners will eventually disagree and those disagreements will be more consequential than who picks up the bill at a friendly dinner.  In the case of a vacation home left in trust by mom and dad, one sibling may live far away or simply have no desire to use the home which resultantly means no desire to share in the costs for its upkeep.  Some siblings may want to rent the home to help cover the costs of ownership while others eschew the idea of renters.

Despite the best intentions of mom and dad leaving a family home to the kids or the honeymoon-type excitement of friends buying a great vacation home together, it is usually a matter of when, not if, things will go awry with multi-family owned homes.  Our experience provides plenty anecdotes of the likely origins of controversy, with the most common described below.

• Someone will need/want to sell. In the case of an inherited home, one heir may have an immediate desire to sell.  In the case of friends collectively buying a vacation place, it may be 5-10 years later before one owner will invariably have a desire or need to sell.  Unforeseen job loss or financial hardship, needed cash for impending college tuition bills, or just less than anticipated usage are some of the common reasons why you can bank on someone desiring to prematurely sell their share.  How does that person monetize their share and at what value?  Do the other owners get a right of first refusal?  Who decides when the home is eventually sold and at what price?

• Someone won’t be able to pay their share of the mortgage. If you’re buying a vacation homes that is financed through a shared mortgage, expect that one of the borrowers will face financial hardship in the future and not be able to make mortgage payments.  How do you deal with such a situation where one owner cannot pay their share of the mortgage and needs to sell?

• Someone will want to upgrade the dock/kitchen/bathroom/roof/etc. but others will not. How do you address the inevitable situation where someone wants to do an expensive upgrade but you don’t see the value?  Alternatively, what happens when you want to fix the dilapidated roof or upgrade the A/C units but other owners don’t agree or cannot afford to do so.

• There will be disagreement about renting the property. You and another sibling use the home and want to keep it renter-free and well-maintained.  Two other siblings inherited a share of the home, never use it, and want to rent it for income.  How do you decide whether to rent the home and to whom?  Furthermore, what do you say when your college-age nephew wants to rent the home for spring break week with his college buddies?

• Everyone will want the home for the same coveted holiday weekends. There may be an easy way to divvy up the most desirable weekends now but how are weeks and weekends going to be assigned in the future?

This is not to say that jointly-owned vacation homes cannot go well or that parents should not leave a family property to their children.  It is, however, to advise that the rosy outcome envisioned at the onset may differ from the eventual reality.

Parents should first consider alternative solutions beyond simply leaving a home for all children to share equally.  Conversations to determine which children actually want to keep and maintain the home in the future are a useful starting place.  Estate planning attorneys will unfailingly agree that it is also critical to have discussions with eventual beneficiaries about responsibilities and expectations for the home before an estate plan is prepared rather than to simply leave the home to beneficiaries and let the chips fall where they may.  These discussions create the framework to then evaluate how the rest of an estate may be divided to minimize dispute in the future.

Moreover, families who are considering buying a home together need to really consider how the friendships may be stressed and divided by joint ownership.  We find that too often friends in such a place fail to adequately consider how finances or situations may change in the future.  It’s one thing if your friends are struggling to pay their mortgage but it is an entirely different matter if they’re struggling to pay your mortgage.

At the end of the day, you can and should put measures in place to help improve the likelihood of things working out well but that doesn’t mean that friendships won’t be ruined or families divided.  Lawyers might contend that well written legal agreements or trust documents can adequately address the potential challenges of joint home ownership.  Furthermore, provisions can be put in place that clearly lay out how decisions are made.  While this is all true, it does not mean that feelings will not be hurt, disagreements won’t arise, or that relationships will not be permanently scarred.  The best advice for parents leaving a vacation home to heirs or friends considering whether to jointly buy a vacation home is simply to consider whether the advantages outweigh the drawbacks of inevitable disagreement in the future.