In 2013 in the United States alone, there were more than 700,000 vacation homes sold to buyers, busting the myth that shared vacation homes are not affordable for the average American. Timeshare companies love to position vacation home ownership as inaccessible, naturally because it legitimizes the need for a long-term expensive lease (with no options), otherwise known as a timeshare.
While independently owning a leisure home means dealing with expenses such as property taxes and upkeep, it’s important for families to consider that with a timeshare opportunity, you are already paying a share of those expenses on a property you do not own. Unlike a timeshare however, a property co-owned by several family members and/or friends, offers the opportunity to build equity in a hard asset, that offers a financial advantage.
There are many caveats for buyers to be aware of, before they head into a joint ownership of a deeded vacation property (in lieu of a timeshare). But for many, a shared vacation home is an opportunity to enjoy the vacation time with less financial risk, compared to timeshare ownership. Is this a better opportunity for Americans than timeshare ownership or rental? We think so, and we’ll review some of the benefits and steps to consider.
What Do Vacation Homes Cost?
According to one article in The Wall Street Journal, the average cost of a vacation home in the United States is $168,700. Approximately 41% of vacation home purchases are made in the southern American states where weather is favorable.
55% of vacation home buyers were under the age of 45 years.
52% of vacation home buyers purchased a principal residence, or second vacation or investment property within 24 months of the purchase.
87% of buyers intend to use the vacation property for family and leisure use.
23% of buyers purchase vacation homes for rental income opportunities.
Remember that only 9% of Americans own a timeshare; the rest of the country has found affordable, financially lucrative ways to enjoy the same benefits, without the strict limitations that timeshare contracts provide. For many families who enjoy the idea of economizing vacation home ownership,
Step One: Find a Lawyer
There are many legal aspects to sharing a property with family members or friends, that are best addressed by legal counsel. Drafting a co-ownership agreement can help protect all parties in the event that one or more investors or co-owners wish to exit the agreement.
For tax purposes, some people choose to use a vacation property as a part-time home-based business, or utilize unused vacation weeks to earn income to offset the cost of ownership. Sound familiar? That is one of the advantages frequently offered by timeshare and resort membership sales teams, because there is always a strong demand to rent during peak vacation times. But unlike trying to rent a timeshare, there is less competition when you have a vacation home you are able to provide interested renters. Try renting your timeshare successfully in a resort with hundreds of similar units that are also available for rent; one of the reasons why timeshare rentals fail to provide income for owners.
Setting up the purchase through an S-Corporation or LLC., can also earn co-owners some optimized tax benefits, that can also offset the cost of vacation home ownership. Just like the obligation of owning a timeshare, financial needs and abilities can change over time, so an exit strategy should be discussed among buyers, to come to a formal agreement about how owners will manage one or more partners exiting the joint property arrangement.
Talk to a legal professional about the best way to contract terms and provisions for all investors in the property, and discuss sale, rental and other contingencies, before buying.
Step Two: Find a Property
The fun part is hunting for the ideal vacation home that suits the needs of all investors, family and friends that will be co-owners. Foreclosure properties that are in good condition offer a tremendous savings opportunity, but frequently do not qualify without strict lending terms. You will save on the cost of purchase, but many foreclosure properties are cash-only sales, which may mean finding alternative second party financing to purchase the property.
Consult with real estate professionals that are local to the region you are interested in. Data from previous real estate sales of comparable properties will give you an idea of fair market price, but also long-term appreciation and value estimates. Some families decide to co-buy a vacation property for a set term of five or ten years, and then flip the property for a profit. Depending on the type of vacation home you find, the opportunity can provide a lucrative investment opportunity.
Step Three: Coordinate a Down Payment
Combining efforts from multiple families to procure a down payment is less difficult, and less intimidating during the vacation home buying process. Shares in the investment home are typically valued based on a ratio of down payment and investment in the property. Taxes, utilities and upkeep may be shared equally, or split according to weeks of use (much the way classic timeshare fees are calculated).
One of the exciting opportunities is the ability to save on finance interest charges, by being able to access a larger down payment on the property. Large groups or families that purchase together may be able to provide as much as 50% cash down payment or more, which reduces the cost of mortgage interest by preferred lenders, saving the group even more money on an annual basis.
Step Four: Sign the Mortgage
All purchasing parties will be required to sign the mortgage, to close on the vacation property. Once the property is purchased, insurance and other necessities such as legacy designation (children or next of kin) should be outlined in a legal will. Should something happen to one of the buying co-owners, their share in the property should be inherited by designated family members, to avoid disputes or contest of deed and ownership.
Step Five: Enjoy!
Unlike a timeshare, Americans that choose to coordinate the purchase of a vacation home with ‘partners’ can enjoy all the provisions of timeshare ownership, and the lifestyle that goes with owning a cabin, a cottage or lakeside home.