Considerations When Buying or Selling a Family Vacation Home

If a summer getaway to the ocean, lake or mountains has whetted your appetite for a vacation home, you have lots of company. U.S. vacation-home sales have continued to boom since soaring to a record 1.13 million in 2014, according to the National Association of Realtors. Perhaps you are looking to join either the buyers or the sellers this year.

In either case, do not let your eagerness crowd out practical and financial considerations. This is particularly the case with a family vacation home that you want to pass to heirs. An effective plan for multi-generational ownership of a vacation home should take governance into account.

Three factors are particularly important:

1. Make family communication a priority.

Have a frank family discussion about options for the property and find out everyone’s expectations. Consider your children’s vantage point, independently of what they may tell you. Would they want to preserve the tradition for generations to come or would they rather have the cash from selling it once you’re gone? Are all siblings and their spouses on board with the long-term plan?

2. Consider all financial implications.

Crunch the numbers on options under consideration. This will help remove some of the emotion from the process and put the home’s worth in perspective as a percentage of an overall estate. Be sure to factor in the cost of a future expansion if that will be necessary to accommodate the family for years.

3. Put all expectations and rules in writing.

Draw up guidelines for how the vacation home should be used and maintained. The guidelines should lay out rules for scheduling and use of the home while also addressing maintenance, repairs and operating expenses and individual responsibilities for those costs. You may wish to prefund a separate account and lay out ongoing obligations. Agree on a process for family members/shareholders to opt out of their ownership; consider establishing a buyout fund.

Similar issues apply if you plan to buy a vacation home with friends. Just be sure to consider all the pros and cons, and draw up a contract that attempts to provide for all possible contingencies. Don’t let your getaway dream home turn into a nightmare.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.