Picture it: You’re skiing straight into your slopeside condo, sipping a margarita in a cool ocean breeze from the porch of your beach home, or finally having a yard for your dogs after years in an apartment.
But if you can’t picture yourself shouldering the cost of such luxury yourself, you might be thinking of going in with friends on the purchase. You’d be sharing the risk and the responsibilities, and you’d get to enjoy a place you couldn’t afford on your own.
But experts advise that you should fully understand what you’re getting into if you don’t want your friendship to turn into the modern-day Hatfields and McCoys.
Kris Hyland, a broker associate with Colorado Premier Resort Properties in Breckenridge, Colo., says skyrocketing prices in resort areas are forcing more buyers into partnerships. She emphasizes that it’s important to have a contract outlining responsibilities and expectations for every conceivable scenario, such as:
-- How will the owners decide when each gets to use the property?
-- What are the rules for letting other friends use the property?
-- How will liability issues be handled?
-- Who’s responsible for arranging maintenance, and how will costs be shared?
-- What happens if costs like utilities or condo fees balloon beyond what each partner expected to spend?
-- If an owner dies, who gets his/her share?
“Make sure everybody understands this is a business and a friendship,” Hyland says. “I look at this as a marriage in a sense.”
There are a number of financing questions as well when buying a home with friends, says Pamela Hamrick, Vice President of Operations for LendingTree Loans, an affiliate of RealEstate.com.
Friends don’t normally share intimate details of finances with one another, but that’s not possible if they’re going to purchase a property together, Hamrick says. The partners might have different credit ratings, and some might have more assets than others – all of which affect lenders’ decisions.
“I just think it’s important to sit down and have a discussion about anything a lender would ask about them,” she says.
Lenders will look at the combined income – and the combined debt – of all the borrowers, Hamrick says. “I guess the key is to find a partner who is going to complement or enhance your financial situation.”
At the same time, if one partner ends up having financial problems, that could affect the others, she says. They might have to refinance the mortgage loan to buy out the partner, she says, or find another way to come up with the cash.
“You can’t be quite as flexible or nimble when there are other people involved in the transaction,” she says.
Published on May 23, 2007