What you need to know before buy a vacation house with friends
There are a lot of questions around how to buy a house with friends or family, so we created a list of the basics you need to know before considering it.
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Between rising home prices, lack of inventory, and rising inflation, buying a home in the current market has proven challenging, especially for millennials. So many of us dream of home ownership, whether for a primary residence or a vacation home, but feel like market trends continue to put that dream further and further out of reach.
After a particularly restful vacation with your favorite cousins or a getaway weekend that brings the whole gang from college back together, you might start wondering, what if you could all chip in to buy a house together and do this more often? Is that even possible?
In short, yes. Buying a house with a group of friends is not only possible, but becoming increasingly popular. According to data from real estate analytics firm ATTOM Data Solutions, the number of co-buyers with different last names increased 771% from 2014 - 2021, a figure that’s only been accelerated by the economic impacts of the COVID-19 pandemic. Buying a vacation home as a single family might seem financially impossible, especially if you’re only able to use the home a few times a year. But when friends pool their finances, the cost of owning and upkeep can suddenly turn talking wistfully about that place in Mexico or Lake Tahoe that you’ll own “someday” into the home you can actually realistically own, for real.
The big question remains: how complicated is it?
First of all, you’ll need to determine who you’re buying with and if your financial and future goals align. You can read further about the pros and cons of buying with friends and what it might mean for your relationship here.
Buying a home with friends is, of course, more complicated than buying as an individual or couple. While applying with a co-borrower can make it easier to make your down payment and get a loan (if, of-course, your co-borrower has strong credit), most traditional lenders will only approve loans with up to four borrowers. Some credit unions or smaller banks are willing to underwrite a mortgage for more than four applicants, but this is a case-by-case occurrence and you’ll need to check with your individual financial institution.
Another option for purchasing a vacation home as a group is through an LLC, or Limited Liability Company.
An LLC is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. It is used in real estate as a vehicle to buy and hold property investments and for fractional ownerships where co-owners can own a property where all parties are comfortable paying recurring fees to a management company.
When you buy a property with a group of family members or friends, forming an LLC can protect members of the group from liability if there’s a dispute or lawsuit, or if one member stops paying the mortgage or wants to sell. This is also convenient if you’re buying the property as an investment; the LLC offers protection from personal liability.
