With soaring property prices and a limited supply of waterfront cottages, the dream of owning a vacation home is becoming increasingly difficult to attain. And then there are the costs of ownership: taxes, maintenance, boat, insurance and renovations. In a recent blog, Renting versus Buying, I estimated the cost of maintaining a cabin to be roughly $12,000 a year. This figure does not include mortgage payments.

How then do people afford the dream? Some will rent out their cabins over the summer to recoup their expenses, but there are other ways to make ownership affordable.

Co-ownership

People have mixed emotions when it comes to co-owning a property. It’s not for everyone. Compatibility is likely the hardest hurdle to overcome. The issue of how the property is to be used is another. One family might want to rent it; the other may prefer to keep it open for last minute get-aways. Deciding on who gets to use it, when and how, all have to be agreed upon. Any of these issues can be deal breakers, but in reality, they are actually qualifiers. If the both parties are unable to come to terms on these items, then they are probably not suited to enter into this type of arrangement.

The first test is actually buying the property. This is a great opportunity to see how other people react under pressure. It’s during this phase that discussions around occupancy, renovations, and budget should be discussed. It’s important to put everything on the table in the beginning and make sure everyone has an opportunity to voice their concerns and expectations. This is also the best time to walk away from the deal before anyone has invested anything.

Once the property has been chosen and the offer accepted, an “Agreement of Use” should be drawn up and verified by a lawyer. Think of this as a prenup. This document will provide the foundation for conflict resolution. If the partnership works well it may never be used, but if it fails, it will make the dissolution process much easier.

When drafting an Agreement of Use, it should include the following:

• Budget – agreement on expenditures: capital and operational

• Selling the property – how to get out

• Divorce/New spouse

• Death

• Inheritance – children’s ownership

• Non-payment of fees - dealing with deadbeats

• Calender – who uses it and when

• Mediation – can a co-owner be forced out

• Liens on the property

• Rental income

An Agreement of Use will cover the big things, but sometimes it’s the little things that can sour a relationship. Things like: bad housekeeping, dirty lines, no linens, failing to stock up i.e. empty propane tanks or no toilet paper. Being considerate will go a long way to keeping the partnership intact.

A bank account should also be opened to pay bills and track expenditures. It’s healthy for both parties to understand each other’s strengths and use them. For example, if someone is a detailed numbers person then have them manage the finances.

Finding the right partner or family can save a lot of money and help both parties realize their dream of ownership.

If there are any co-owners out there, I would love to hear about your experiences and any tips you might have.

Cheers,

Julie

PS Next week we will take a look at fractional ownership.

This entry was posted on Wednesday, November 21st, 2007 at 10:45 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.