If you’re trying to build a portfolio of real estate investments. Your biggest challenge is likely to be start up financing.
A friend can help you buy a vacation rental sooner than you expected. When you buy a house together with a friend, you can increase your purchasing power. This allows you to:
There are some keys to achieving your goals and maintaining good relationships with your friend or partner when buying a vacation rental together.
It can be challenging to buy a house with friends. However, The financial and personal rewards can be enormous if it’s done correctly.
It can be difficult to find a partner for an Airbnb or VRBO purchase that agrees on how to handle making decisions. However, you can clearly delineate if you share decision-making or if one individual with more experience has the final say and personal space.
These guidelines will help you stay in good standing with your friend while making smart decisions when purchasing a home.
Effective communication is by far the most important aspect of any relationship. This is especially true when money, property, and friends are involved.
All decisions regarding repairs, upgrades, and changes to the property should be discussed and agreed upon by all parties unless someone only wants to be a silent partner.
Talk to a trusted financial advisor or real estate attorney if you have any questions. This will ensure that you make smart decisions regarding the maintenance and financial benefits of your property.
It is a smart idea to set aside regular time to check in with each other about the home, rather than letting minor annoyances grow into a big fight. Think about monthly quick phone call updates to discuss any current or potential property issues that may arise soon. This will ensure that both of you are on the same page regarding the mortgage, bill payments, cleaning, and maintenance of the house.
You may eventually be able to meet more or less often after you all get the flow of running the vacation home.
It will make you both feel better to have an agreement that outlines your responsibilities concerning the property. Consider what would happen if you both decide to sell or if you get married.
Ask yourself questions like:
All these are important considerations to make before you decide to merge your money for a vacation rental property.
Also, make sure you have a file cabinet with all paperwork. Online copies are great but you want to have a hard copy of everything for redundancy.
Each of you should have access to the records and online information about your mortgage so that you can ensure that your payments are timely and consistent.
Use a shareable online storage tool like Google Drive, Evernote or Dropbox for files, and Quickbooks or Wave to keep track of accounting.
It is important to clearly define your responsibilities when buying a house together.
It might be a good idea to recognize your weaknesses and divide the responsibility for the rental property according to your strengths.
While you should still agree to major decisions and discuss them, the partner with the most expertise may be better to:
It is important to make compromises and look at the financial bottom line if one of you is a high-end consumer and has a desire to buy the latest smart-home gadgets and design elements.
Remember the part of why you are buying a vacation house together is to reap financial benefits. If you spend too much on home automation technology, will not be able to benefit.
You may decide to update some systems, finishes, or spaces in your vacation home over time. These decisions should be made together as joint partners to ensure you stay within your budget.
You should also ensure that any home improvements enhance its short-term rental value. You might think it would be beneficial to have a pool in the backyard. This type of improvement can increase the home’s value in certain markets, particularly those with mild year-round weather such as coastal areas or resort-type areas. However, a pool can have no effect on the Average Daily Rate in areas with colder weather.
You will share ongoing costs for maintenance when you buy a house together, including taxes, insurance, and homeowner’s association (HOA). Unexpected events such as storm damage or major appliance or system failures can also impact your monthly budget. Each member should contribute to a shared reserve fund that is used only for vacation home upkeep at the beginning of operations.
This way, you don’t have the worry of an unexpected repair bill that leaves one of you with the bill or the other scrambling for the funds.
What amount should you save?
Add up all the expenses that you anticipate you will incur in the next year. This includes HOA dues or condo fees, ongoing maintenance like landscaping, and other costs. In the beginning, holding 15-20% of the vacation rental revenue is a great starting point. As you hold the property longer, you can adjust.
Creating an LLC to hold the rental property is one of the smartest things you could do. This allows you to put the property in the LLC and not have any personal liability if a legal issue arises during your tenure as the owner. Learn how to open an LLC here.
There are many ways to separate your shares of a home if you and your friend decide not to continue the short-term rental. These include:
When deciding whether to buy a vacation house with a friend, it is a good idea to consider your long-term financial, professional, and personal planning.
Buying property with a friend can be a more significant financial commitment that could have a huge impact on your financial future.
It comes down to this: while you may have many friends who you would like to go to on a Saturday night pub crawl, there are not as many people whose financial lives you would like to mix in with yours.
To buy a vacation house with a friend, you need three keys ingredients:
Your personalities, communication styles, and financial philosophies should complement one another.
While buying a house together with friends can yield great benefits, it can also be expensive to choose the wrong friend or co-owner.
If you are thinking about buying a vacation house together with someone, make sure you think long-term. Also, create a plan that works both for you and your friends over several years. This is a great way for you to make your investment dollars go further and build wealth in the future.
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