Vacation Home Sharing

Owning a second home is a luxury that very few people can afford hence the need for people to enter into a vacation home partnership. A vacation home partnership could be used to enter into a fractional ownership set up. In such, a larger group of people share a home without sharing space when they go on vacation. Rather, every owner uses the home for that portion of the year.

Fractional ownership isn’t the same as a timeshare in a vacation home partnership. While timeshares come in many forms, they are typically owned and run by for-profit companies. Rather than having one name on a vacation home partnership, parties sign a contract giving one the right to use vacation property for a certain amount of time. In contrast, if one owns part of a fractional vacation property, one’s name is usually on the vacation home partnership, and owners exercise more control over the property. Not everyone uses these terms the same way, however. The details of any vacation home partnership being considered should consider the rights and protections one want for one shared vacation property.

Most timeshare and fractional home ownership programs give one points or credits that one can redeem to use other vacation properties. For example, a timeshare ownership might entitle one to 14 nights per year in vacation properties across the country. With a fractional ownership program, one might own a deeded portion of a property, but that ownership sometimes comes with points one can redeem at other properties in a fractional vacation home network.

How to buy a vacation home with other people

There are a variety of ways to get into fractional home ownership through a vacation home partnership:

  • Managing the whole process oneself by forming a group of friends, acquaintances, or people one find online and buying property together. Thus, forming a vacation home partnership.
  • Buying a property (or use a property one already own) and sell fractional shares to others. It often helps to have a vacation fractional broker or consultant handle the marketing and sale of the shares. Thus, forming a vacation home partnership.
  • Buying into a vacation fractional or timeshare that has been organized by a private developer or broker. These services are typically based in a particular region of the world. Search online for “Fractionals” or “Timeshares” and “Costa Rica,” for example, and one will likely find a local company that sells fractional vacation homes and timeshares. Thus, forming a vacation home partnership.

Shared vacation home ownership structure

Fractional vacation homes are typically owned as tenants in common based on the vacation home partnership. Every owner’s name appears on the vacation home partnership, along with their respective ownership percentage. Some fractional owners form an intermediate entity, such as an LLC, nonprofit, or for-profit corporation. Rather than owning the property directly, the owners hold shares in the company or a membership in the nonprofit based on the vacation home partnership. This limits the group’s liability and makes it easier to bring in new owners, but also creates administrative burdens and prevents owners from claiming property tax and mortgage interest deductions.

Typically, co-owners take out a group mortgage and divide the down payment and monthly payments according to the vacation home partnership. However, fractional financing might be available, particularly if one group is relatively small.

Sharing expenses on a shared vacation house

It’s a good idea to ask every owner to chip in a set amount each month to cover expenses. This is preferable to trying to reckon costs as needed or reconcile bills every month. One can also overestimate costs, which allows the group to build up a reserve fund for major repairs or remodeling. Vacation fractional owners often hire outside management companies to handle scheduling, pay expenses, and do regular cleaning, maintenance, and repairs. This should be stipulated in the vacation home partnership.

Scheduling and house rules for a shared vacation house

Because only one owner uses the home at a time, scheduling is an important issue for a fractional home, particularly if the home is likely to be most popular during one season or time of year (as might be true of a ski cabin or beach house).

One’s group can use any system that works and include the same in the vacation home partnership. A typical scheduling method is to assign certain weeks or months to each owner every year. One can use the same schedule every year—some groups even include these dates in the deed or other recorded real estate document—or one can rotate or otherwise change the dates each year.

If one wants less formality and more spontaneity, one can simply sign up when one wants to use the house, and pay the group based on the number of days one use it. At the end of the year, if the payments exceed the annual costs, then owners divide the surplus as is stipulated in the vacation home partnership. If the amount falls short of the annual costs, each owner chips in extra money to cover the deficit. Of course, this method risks disputes when owners want to use the home at the same time. One could require owners to sign up well in advance, or perhaps rotate the most popular months or weeks, to solve this problem.

One’s group should come up with rules about what kinds of alterations can be made on the property, whether there is a fixed decorative scheme, whether pets are allowed, whether there’s a limit on the number of guests, and so on.

Resale issues for shared vacation homes

Make sure that one can resell one share of a shared vacation home without too many hassles. Some co-owners might want a right of first refusal or even a right to reject a proposed buyer if they can articulate a good reason why.

If one has a shared mortgage on the property, the group might have to refinance if one person sells a share based on the vacation home partnership. In some states, selling a share could also mean the property is reassessed for property tax purposes—something one group no doubt wants to avoid.

It can be hard to sell a share of a fractional, which means some owners might eventually feel stuck with a share of a home they no longer use. To avoid this problem, the group might want to set a future date, in their vacation home partnership. When owners who want out can either force a sale of the whole property or require other owners to buy them out at the then-current market price.

Renting a shared vacation house

One thing to consider before buying into a fractional vacation home is whether one or other owners will be able to rent out the house during the time when it’s ones to use. One benefit of fractional ownership, as opposed to individual ownership, is that there is less need to rent out one property. Traditionally, vacation homeowners rent out their property to cover the costs of owning a second home. By dividing the cost of ownership, one can avoid having to rent.

If, however, one wants to be able to rent out one fractional share, make sure one agreement allows for it. There will be a number of issues to work out, including how often the house may Asbe rented, how renters will be chosen, how much rent one can charge, what happens if a renter damages the property, and so on. And depending on how many days one rent out the property, there might be some tax implications to consider. Such should be included in the vacation home partnership.

Regulatory hurdles of fractional vacation homes

In many states, timeshares and fractionals are subject to approval by a state real estate agency. For example, in California, a vacation home with more than ten owners must be approved by the state Department of Real Estate, to ensure that the property, financing, and agreements between owners are properly arranged. Before buying, one group should talk to an attorney or consultant who can advise one about any regulatory issues that apply in one state. The laws should be considered while drafting a vacation home partnership.

Also, if one fractional home is primarily an investment vehicle and all owners will share in the rent, the arrangement might be subject to state and federal securities laws. Typically, such laws apply when ownership shares earn passive income (income from someone else’s activities). In this situation, one should consult with an attorney and find out whether one’ll have to meet additional legal requirements and update the same in the vacation home partnership.

Aspects of a vacation home partnership

The vacation holiday home should be just that – for vacation- and governed by a vacation home partnership. Members` interests in LLCs are personal property and generally reasonable restrictions on transfers are enforceable. An LLC can be structured to be taxed in the same way as a partnership, however, the owners or partners of a partnership are jointly and severally liable for the debts and obligations of the partnership. The vacation home partnership is a separate document and is an agreement between the owners of the LLC.



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