You’ve probably returned home from an awesome family vacation and have wondered what it would be like to own a vacation home. A place you can go with your family whenever you need to get away. Maybe it’s on the beach or in the mountains.
More than likely you've also taken a peak at Zillow or Redfin to see what the prices are and if you can afford a vacation home. After a few minutes of browsing, you close the tab because it seems impossible.
But it doesn’t have to be. With a little creativity, you can buy that vacation home with your family. Today we dive into 5 expert tips for buying a vacation home with family so when you are ready you know what you’re in for.
- Agree on location, house features, and budget
- Formalize your family investor group
- Decide on responsibilities and when the family can use the house
- Establish succession plan and an “out”
- Owning a real asset has many upsides
Related Read: Buying a Beach House with Family
Agree on Location, House Features, and Budget
It’s important to lay the groundwork with your family members by agreeing on the home. Where is it located? How many bedrooms and bathrooms? Beachfront or lakefront? How much does each family member need to contribute and what is the timeline?
By asking these questions, you and your family can start to hone in on a budget and create a plan.
The vacation home could be strictly about making money. If that’s the case, your questions should be geared toward the numbers, opportunity, and operation. If it’s also about owning and using the vacation home, then your family members should understand that could cut into profits.
Beyond agreeing on the home, you will need to set a deadline for family members to say they are in or out. This is a best practice, because it allows family members that don’t know how to say “no” to let the deadline pass.
Formalize Your Family Investor Group
Once you’ve agreed as a family on what vacation home you’d like to purchase, it’s important for your family to formalize as an investor group. Don’t keep things casual, formalizing makes it real. Now it’s not a question of “if” but “when!”
You’ll need to be ready to put in an offer at any given time, so be prepared to take some time to formalize. What goes into formalizing? You’ll need to form an LLC, open a business bank account, and create an operating agreement.
These are all time consuming and expensive tasks if done individually. If you’re ready to formalize, let a tool like Tribevest do the heavy lifting for you.
- LLC formation and maintenance
- Operating Agreement templates and signature collection
- Banking, equity table, voting, fundraising, and distributions
With these components in place, your family will be able to pool capital, purchase the vacation home, and distribute earnings without any hassle.
Related Read: How to Buy Property with Multiple Owners
Decide on Responsibilities and When Your Family Can Use the House
Another thing to consider when buying a vacation home with family is responsibilities. Will there be any work that needs to be done? If so, who will be responsible for hiring contractors or doing the work? How will utilities be set up and who is responsible? Making sure these responsibilities are outlined is important to avoid disagreements or a falling out.
If your family will be using the house as a vacation home, what will you do with the home when your family isn’t vacationing? Renting or leasing? For Travis Smith, Founder and CEO of Tribevest, he and his brothers maximize their cash flow and rent their Cape Cod vacation home during peak months. Then the family fills in on the shoulder months. It will be different for everyone, but what is important is that the family agrees on it!
Establish a Succession Plan and an "Out"
More important than the rules, are the rules up front! Your family should be getting in for the right reasons and plan to be in for the long term. No one likes to think about what may happen when a loved one passes on or if a family member wants out of the investment, but these things happen and you’ll want to be prepared.
These situations become easier to navigate when you have the rules laid out in your Operating Agreement. This document ensures that what was agreed upon by the family up front will be honored in unexpected situations. An operating agreement helps to eliminate emotion in these situations.
Owning a Real Asset Has Many Upsides
There are a ton of great reasons to buy a vacation home. First of all, real estate is a great alternative asset to own. You can lease it, short-term rent it, live in it, flip it, sell it, etc. With so many options available, you and your family can really de-risk the investment.
Another great benefit is taxes. Ideally you are cash flow positive but investing profits back into the property to eliminate any taxes so that you breakeven.
You can leverage it. Pull money out of your vacation home to improve it or buy even more vacation homes! And in general, real estate typically appreciates in value because of the land it sits on. You and your family really can’t go wrong with a vacation home.
Buying a Vacation Home with Family
Buying that dream vacation home with your family may seem like a stretch, but you’re closer than you think. Teaming up with your family is a great way to reach the minimum investment required, build wealth, learn real estate investing techniques together, and grow closer as a family.
When you’re ready to get started, Tribevest is here to help formalize your family investor group. You can use our tools to manage your LLC, open a business bank account, and pool and distribute funds.