Splitting a Second Home With Family or Friends? Get a Lawyer
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Splitting a Second Home With Family or Friends? Get a Lawyer

Plan specifying how bills are paid might reduce conflict among co-owners

By VERONICA DAGHER
Tue, Jul 25, 2023 8:22amGrey Clock 4 min

Buying a vacation home with family or friends might seem great on paper. Often, those who do so regret the decision.

Home buyers who split the purchase of a vacation spot with family or friends say they are doing so to cope with high mortgage rates, steep home prices or rising home-repair costs. Others are inheriting vacation property as more of their baby-boomer parents die.

In both cases, homeowners say disputes about house guests, repairs and maintenance threaten to spoil the arrangement. Conflicts over the homes can ruin friendships and split up families, while co-owners sometimes end up in legal battles.

The pandemic-fuelled housing frenzy has made the situation worse, say real-estate lawyers, given the surging price of homes has led to more fights about the use and renting of properties. The typical property in second-home markets such as Naples, Fla., and Myrtle Beach, S.C., sold for about $558,000 in June, according to the latest data from Redfin. The typical U.S. home sold for about $426,000, Redfin said.

In Sevierville, Tenn., Avery Carl’s HVAC unit started to act up.

Carl and the woman with whom she owns the home disagreed on how much to spend to fix it. The options were to pay more than $6,000 to install a new system or a few hundred dollars to periodically replace the problematic part.

“Things were tense for about two weeks,” said Carl.

The women eventually found common ground, invested in a new HVAC unit and remain friends, Carl said.

Lawyers and financial advisers say the key to avoiding dangerous scenarios with family or friends is communication and a plan in writing before potential problems arise. Here are three areas where co-ownership can go awry and advice on how to keep the peace:

Set expectations in writing

Financial planners often advise against sharing the ownership of a vacation home with extended family or friends. Don’t assume that even small conflicts will be breezily resolved, they say.

Will Clauss, a Realtor in Hawley, Pa., has seen joint ownership start off smoothly and then go south when a co-owner’s personal circumstances change.

He recently worked with four siblings who bought a vacation home in Pennsylvania’s Pocono Mountains. They had agreed in writing to share expenses equally and rotate which of their immediate families would stay at the house on the Fourth of July and other big holidays.

But when one sister moved away, she no longer wanted to pay an equal share of the home’s expenses. The family ultimately agreed to excuse her from the property’s utility bills. She would need to keep paying her share of the mortgage as she will benefit if the house appreciates and they eventually sell it.

Clauss advises clients with a shared property to hire a lawyer who can put in writing key points such as how an owner could sell his share, how disputes are resolved and who pays the bills.

“A vacation home is unlikely to be shared long-term without serious disagreements and aggravations,” said Avi Kestenbaum, a partner at Meltzer, Lippe, Goldstein & Breitstone, who has helped several heirs settle disputes after they inherited a vacation property.

For instance, decide whether each owner is expected to have the home cleaned before departing, who gets to use the primary suite bedroom if several owners are there, and whether the home might be used as short-term rental, said Clauss.

Remodelling and repairs headaches

A recent rise in natural disasters has also created more discord about who will pay for improvements, renovations and maintenance on the home, said Michele McCallion, a financial adviser with UBS Financial Services in Greenwich, Conn.

Minimize this conflict by having a plan for how bills will be paid.

For routine operating expenses such as taxes and insurance, Jonathan Lauer, his brother and two cousins each pay about $11,000 a year to help maintain the Point O’Woods beach house they co-own on Fire Island, N.Y. Sharing the financial burden is helpful, especially in light of rising costs, he said.

Deciding on bigger and less-routine expenses is trickier. The family’s formal legal operating agreement for the home requires a unanimous decision on any discretionary spending above $10,000, so all four owners have to be on board with any big project.

This winter, the family completed a much-needed kitchen renovation and put in new front steps that cost about $140,000 in total. While the spending guideline helps keep the peace and put a lid on costs, it sometimes slows down decision making, Lauer said.

“It took seven years for all of us to agree to go through with the project,” he said.

Have an exit plan

If you own a house with others, consider how you will eventually unload your share.

Parents who plan to leave the home to their heirs can help prevent future fights by having a candid dialogue with their children to find out if they even want to keep the vacation home after the parents die, said Kestenbaum, the lawyer with Meltzer, Lippe, Goldstein & Breitstone.

Brent Weiss, a financial planner in St. Petersburg, Fla., works with a man who inherited a vacation home with his three siblings.

After the first year of co-ownership, two siblings wanted to sell and the other two wanted to keep it and rent it out part time. The family ended up in a legal battle.

The property was recently sold and some of the siblings aren’t speaking to each other, Weiss said.

“If clear expectations aren’t set early on, pressure can build and eventually blow the top off the partnership,” said Weiss.



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Stronger demand in some areas is pushing unit rents up faster than houses

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Renters are returning to the apartment market, leading to higher growth in weekly rents for units than houses over the past year, according to REA data. As workers return to their corporate offices, tenants are coming back to the inner city and choosing apartment living for its affordability.

This is a reversal of the pandemic trend which saw many renters leave their inner city units to rent affordable houses on the outskirts. Working from home meant they did not have to commute to the CBD, so they moved into large houses in outer areas where they could enjoy more space and privacy.

REA Group economic analyst Megan Lieu said the return to apartment living among tenants began in late 2021, when most lockdown restrictions were lifted, and accelerated in 2022 after Australia’s international border reopened.

Following the reopening of offices and in-person work, living within close proximity to CBDs has regained importance,” Ms Lieu said.Units not only tend to be located closer to public transport and in inner city areas, but are also cheaper to rent compared to houses in similar areas. For these reasons, it is unsurprising that units, particularly those in inner city areas, are growing in popularity among renters.

But the return to work in the CBD is not the only factor driving demand for apartment rentals. Rapidly rising weekly rents for all types of property, coupled with a cost-of-living crisis created by high inflation, has forced tenants to look for cheaper accommodation. This typically means compromising on space, with many families embracing apartment living again. At the same time, a huge wave of migration led by international students has turbocharged demand for unit rentals in inner city areas, in particular, because this is where many universities are located.

But it’s not simply a demand-side equation. Lockdowns put a pause on building activity, which reduced the supply of new rental homes to the market. People had to wait longer for their new houses to be built, which meant many of them were forced to remain in rental homes longer than expected. On top of that, a chronic shortage of social housing continued to push more people into the private rental market. After the world reopened, disrupted supply chains meant the cost of building increased, the supply of materials was strained, and a shortage of labour delayed projects.

All of this has driven up rents for all types of property, and the strength of demand has allowed landlords to raise rents more than usual to help them recover the increased costs of servicing their mortgages following 13 interest rate rises since May 2022. Many applicants for rentals are also offering more rent than advertised just to secure a home, which is pushing rental values even higher.

Tenants’ reversion to preferring apartments over houses is a nationwide trend that has led to stronger rental growth for units than houses, especially in the capital cities, says Ms Lieu. “Year-on-year, national weekly house rents have increased by 10.5 percent, an increase of $55 per week,” she said.However, unit rents have increased by 17 percent, which equates to an $80 weekly increase.

The variance is greatest in the capital cities where unit rents have risen twice as fast as house rents. Sydney is the most expensive city to rent in today, according to REA data. The house rent median is $720 per week, up 10.8 percent over the past year. The apartment rental median is $650 per week, up 18.2 percent. In Brisbane, the median house rent is $600 per week, up 9.1 percent over the past year, while the median rent for units is $535 per week, up 18.9 percent. In Melbourne, the median house rent is $540 per week, up 13.7 percent, while the apartment median is $500 per week, up 16.3 percent.

In regional markets, Queensland is the most expensive place to rent either a house or an apartment. The house median rent in regional Queensland is $600 per week, up 9.1 percent year-onyear, while the apartment median rent is $525, up 16.7 percent.

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