It sounds simple enough: a group of siblings all decide to buy a holiday home. Or perhaps a couple want to buy a property that will be shared by their children. Everyone can use it as they wish, either separately or together. But then it all falls apart.
Arguments break out about who gets to use it and when, or who is going to sort out the maintenance, or if the maintenance is even needed. And when things have really broken down, there’s the question of whether to sell the property, except that not everyone wants to sell, but they don’t want to buy the other shares either.
Matt Parker is a Seattle-based realtor and the author of Real Estate Smart: The New Home Buying Guide. He has seen, first-hand, the problems that occur when family members decide to buy a holiday home together, and he shared with us his advice for avoiding potential blow-ups.
When buying a home to be shared by several siblings or family members, Parker says it is important to remember the reality that the “sharing” is rarely equal. For starters, who will be responsible for taking on the running of the property? Paperwork, taxes, insurance, payment of any association dues, seeing to upkeep and maintenance... these tasks all typically fall upon one person who is left with the headache of chasing after everyone else to collect money. The work that would otherwise be done by a property manager (for a fee) falls to one family member (who is expected to do it for free). But when that person starts making rules, the others get upset.
On a similar theme, the New York Times had an article a few years ago, under the heading “If It Causes Stress, Is It Really a Vacation Home?”. This article talked through the work that's involved in looking after a second home.
Parker notes other potential problems: What about the family member who falls a little behind on their share of the payments? Perhaps they don’t agree that the roof needs replacing just yet and so hold off on contributing towards upkeep. Or they lose their job and so are having trouble making ends meet. Who picks up the slack in those cases? And do they still get to use the property? (Technically, they’re still an owner).
One alternative to purchasing a second home is purchasing a destination club membership. There are several benefits to club membership; members do not have to worry about ongoing upkeep, insurance or day-to-day maintenance, all factors which can remove some of the stress of ownership. "People buy second homes with great hope and excitement, but all too often find the process of owning and maintaining them a source of frustration," says Steve Case of Exclusive Resorts.
A destination club also avoids a sense of obligation that can arise from owning a second property outright – the feeling that you should spend all of your holidays in that one location to get your money’s worth from your investment. With a club membership, family members can all gather at the same location each year, or they can pick and choose according to their mood. Feel like a beach vacation in the spring? Done. A trip to the mountains in the fall? No problem.
Longtime member of Exclusive Resorts, Marshall Zaitlen says "The main reason I chose to join Exclusive Resorts versus purchasing a vacation home was because of variety. I get bored and don't want to keep going back to one place. Plus, there are the hassles of second home ownership like maintaining, cleaning and paying a mortgage. As a member of Exclusive Resorts you get out of all those responsibilities."
Equity member Jack London echoes this sentiment: "Since becoming a member of Equity Estates, one of the best things I've discovered about the club is how hassle-free it's made vacationing—we can just show up and enjoy the vacation.”
Parker’s key piece of advice to those considering buying a property as a group is to create a formative document. Before purchasing, all parties should come together and lay out some simple ground rules: who is responsible for what? Who gets to use the property and when? How will usage be decided each year? How much is each person’s share? Parker suggests that whoever takes on the management role should get a discount, paying a smaller share to compensate for the time involved. He also tells groups to make a de-formative document, outlining what will happen if someone wants out or is unable to make payments.
In Parker’s experience, this is a great way to wean out those who decide against co-ownership. “People will often realize what’s involved and decide it’s not for them,” he says. During this time, clients also often realize, once they’ve calculated actual costs, that they could stay at luxury hotels instead and avoid the hassle of ongoing ownership. If, after all the discussion, you’re still interested? “Then go for it,” Parker advises. “Getting through the process itself will teach you if you can communicate with each other.” But perhaps, you might just find that a destination club membership is a better option.
Here's an earlier article on comparing destination clubs to second homes.