Co-owning a vacation home with your family or friends can be great, as long as you establish clear-cut ground rules—and remember whose turn it is to take out the garbage.
You paid this year’s tax bill on the beach bungalow, but your sister fixed the roof—now who owes whom? And your buddy from college wants dibs on the cabin for Labor Day weekend, even though that’s always been your slot. Suddenly that place where you go to unwind is causing a lot of anxiety.
Whether it’s a family retreat that’s been passed down, or a place you’ve purchased with family or friends, when divvying up the perks—and costs—of a vacation home, the shared responsibilities can be tricky to navigate. “Over the years, so many special moments happen in these places,” notes Michael Liersch, head of Behavioral Finance at Merrill Lynch Wealth Management. “But to keep creating memories, it takes careful planning and clear-cut rules.”
Rules on vacation? As sensible and straightforward as that advice might seem, it isn’t always easy to follow. But, notes Liersch, “A place of anxiety and uncertainty isn’t fun, and that’s what having no rules creates.” Here are six suggestions that can help you keep the vacation home you share humming with joy.
#1 Write it down
To create a shared sense of ownership and responsibility, consider preparing a formal document that lays out your plan for the vacation home. According to Wendy Goffe, a Seattle-based estate attorney and expert on shared vacation homes, the document should begin with the basics: why you own the home and what each person loves about it. For example, do you see it as a place of solitude, contemplation and intimate gatherings, or as a setting for frequent entertaining?
“It’s not just financial matters that can lead to conflicts over a jointly owned vacation home. Often it’s little things, like who forgot to clean the refrigerator.”
–Jeralyn Seiling, director,
Wealth Structuring Group at Merrill Lynch
#2 Be clear about scheduling
The plan should deal clearly with specific questions that could cause conflict. For example, how do you determine who gets the house on the Fourth of July or other holidays and special occasions? Is it first-come, first-served… the one who fixed the roof… or the one who paid the taxes? The answers should be built into your plan.
Scheduling can be one of the more contentious issues. Many people solve it by creating rotating time slots, particularly for second homes where one time of year is most desirable. But this means more than just filling out a calendar. What happens when one family member’s weekend is washed out by rain and she wants a do-over? You must anticipate and plan for such contingencies as well.
#3 Propose—and approve—an annual budget
Your plan should also set rules for the upkeep of the property, including the opening and closing of the house each season as well as how repairs are decided upon and handled. Include a statement on how costs will be divvied up. One solution may be to contribute to a pool dedicated to these kinds of expenses.
Of course, predictable costs like taxes, utilities and maintenance are only one part of the equation. You may want to establish an emergency fund and contribute savings toward projects you anticipate down the road, such as replacing the roof or repaving the driveway.
You can be sure that there will be legal issues too, and Goffe recommends that one person be designated to handle them. Your plan should identify that person and spell out how he or she may be compensated for assuming this responsibility.
#4 Don’t let little things become big things
Your house rules should cover even seemingly petty details such as vacuuming the floors and taking out the garbage. “It’s not just financial matters that can lead to conflicts over a jointly owned vacation home. Often it’s little things, like who forgot to clean the refrigerator,” says Jeralyn Seiling, a director of Merrill Lynch’s Wealth Structuring Group. Establishing clear guidelines on such routine matters as food, cleanliness and the number of guests allowed for sleepovers will go a long way toward keeping the peace.
#5 Give stakeholders a way out
Be sure to include an opt-out plan for those who may decide at some point that they aren’t interested in being part of the arrangement any longer. Perhaps they’ve experienced a financial upset or life change that requires them to sell their position in the house, or they simply have new priorities. “Locking everyone into a fixed agreement can lead to resentment when someone has a reversal of fortune and needs ready access to cash,” says Seiling.
The details of the exit strategy will vary according to the group’s financial situation. “Often, when one person wants out, other members will have an automatic right of first refusal to buy his or her share,” she notes. To prevent remaining stakeholders from immediately facing a steep payout, the rules may stipulate that payments to the departing person be made in installments over an agreed-upon time period.
#6 Make it easy for everyone to play by the rules
After you’ve written the rule book for your vacation home, make sure it stays on everyone’s radar. Liersch advises creating an online calendar that members can easily reference. In addition to dates, the calendar can help keep track of scheduled maintenance and other expenses. “This helps you create accountability for things that are going right and wrong,” says Liersch. “If one person is doing an outsize portion of the work, others can see that and step in.”
One final note: Don’t forget that rules are made to be broken and communication is key. Should one of your house rules be overlooked, accidentally or otherwise, it helps to remember that the rule breaker is someone you care about.
Neither Merrill Lynch nor any of its affiliates or financial advisors provides legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.