- Communication is key. This saying rings more true than ever when it comes to co-owning a property.
- Outline the logistical details of joint ownership now so you can rest easy and enjoy the cabin for years to come.
- Hire professionals, like an attorney and REALTOR®, to guide you as you buy or inherit a cabin with friends or family.
Whether you grew up in Minnesota or Wisconsin, or have vacationed in the area, you’ve likely experienced the joy and peacefulness of lake life. Memories of roasting marshmallows, canoeing across the lake and laughing through family game nights are abundant when summering at a cabin or renting one for the week.
While you may be dreaming of your perfect lakeside abode, purchasing a second property can feel burdensome to some budgets. Luckily, you don’t have to do this solo. If you are ready to purchase a cabin with friends or family, or have jointly inherited a lakeshore property, here are considerations to keep in mind as you move forward with cabin co-ownership.
How to purchase a cabin with friends or family
The excitement of a cabin purchase is likely to prevail at the beginning of your decision to co-own a cabin. While everything may easily align at this stage, it’s important to consider the details of property ownership and potential complications that could arise later down the road. Here are some steps to set you and your co-owners up for a successful shared property — plus, establishing rules now will help safeguard everyone in the future should an issue arise.
Decide on an ownership structure
When spouses or partners purchase a home, they often take ownership in joint tenancy. This means that if one owner dies, their interest automatically passes to the other owner. That might not make sense when we’re talking about a co-owned cabin. In this circumstance, the owners may want to have their interest pass on to their own heirs and not their co-owners. To do this, you can take ownership of real estate as a tenancy in common, which means that each person owns an interest in the property, but if they die, their interest can pass to their heirs.
Another option worth considering is creating an entity, like a limited liability company (LLC), to own the property. The individuals would each have an ownership interest in the LLC. When creating an LLC, the parties can develop all of the necessary agreements and rules to govern the cabin and the parties’ rights. Another benefit of creating an LLC is that it can help reduce everyone’s personal liability in the event that there is an injury on the property. That may be particularly appealing when you don’t have full control over the use of the property.
Choose your partners wisely
First, it’s important to establish who might be a good fit for this partnership in your life and who wouldn’t — even though you may love hosting them as weekend guests. Apart from sharing laughs and getting along, you’ll need your co-owners to be reliable and communicative. Most importantly, everyone involved should be open to creating strong rules for the arrangement, even if your relationship is typically more casual.
Draft a detailed contract
Take the time to lay out all the technicalities of a co-owned cabin — even more than you think may be necessary — within your contract. By spending the time now to iron out the details, your arrangement is more likely to run smoothly in the future. And that’s important, as it will allow you to spend even more time enjoying the cabin, rather than navigating the logistics of ownership.
In your official contract, consider including these details:
- Cabin ownership percentages
- Division of mortgage, down payment and additional costs
- What happens if someone dies or divorces?
- What happens if someone can’t pay?
- What happens if someone wants to sell, or terminate their side of ownership?
- Who are the beneficiaries of the property, if applicable
- How do you resolve disputes over whether to make a major repair or upgrade and who should be responsible for the costs?
- Lake home insurance plans
- Division of labor and upkeep (financial and labor)
- Any rules on conduct on the property (e.g., no smoking)
- Shared lake equipment, including recreational vehicles and boats
- Schedule for use, including agreements around guests
- Whether the property may be rented when not in use by the owners
Hire an attorney
Hiring an attorney to address co-ownership issues up front is strongly recommended. An attorney can help draft a contract that protects everyone’s assets and keeps the best interests of all parties in mind. When working with a knowledgeable professional, be sure to include a game plan for if one owner hopes to buy the other out, or if one owner would like to end the ownership and sell the property. Even if you don’t foresee this outcome, it will benefit everyone involved to have peace of mind knowing that a plan exists should anything out of the ordinary happen.
Understand co-owned mortgages
A co-owned mortgage or joint mortgage may make cabin ownership more accessible to those who aren’t ready or able to buy a property alone. However, a mortgage is a long-term financial obligation that needs to be thoroughly thought through by all parties.
Comparable to qualifying for a single mortgage, lenders will consider the income and credit information of all parties involved when approving the joint mortgage. If you’re planning to co-own a cabin moving forward, here are ways to prepare your finances before you buy, along with a home loan document checklist to review.
You inherited a cabin with your siblings. Now what?
Similar to purchasing a cabin with others, you’ll want to carefully consider joint ownership and hire an attorney to assist with a co-ownership contract of an inherited property.
Oftentimes, inheriting a property is accompanied with the emotional fallout from losing a loved one. If possible, plan a transfer of ownership well in advance. Not only will this help to minimize any confusion associated with the property transfer, it will also allow for heirs to draw up their own co-owned contract should they want to continue ownership together.
If you or someone in your family is planning to pass down a property in the future, no matter how soon or far out, you may want to look into the details of a transfer upon death deed.
Daily details of lakeshore co-ownership
After the bigger details have been settled, it’s time to get on the same page regarding the day-to-day aspects of sharing a cabin. Schedule a time to come together with your co-owners regarding general cabin guidelines not outlined in the contract.
Considerations for this list might include:
- A cabin calendar, including who gets the property when.
- A plan for hosting guests.
- A schedule for property management, maintenance and improvement, including off-season prep and winter upkeep.
- The use of boats, jet skis, life vests and other shared equipment.
- A plan for how and when you’ll communicate changes, issues or concerns (you may want to schedule an annual meeting).
This is where it can start to get really fun and exciting. While sharing a cabin, you’ll likely end up with even more cabin toys to play with — such as kayaks, bikes and more — depending on how you plan to divide everything up. And, you’ll have double the hands to complete exciting cabin projects like building a bonfire pit or a landscaped path from your property to the lake.
Pro tip: Consider keeping a shared notebook or binder in the cabin to communicate things like when water filters or HVAC filters were last changed, what cabin quirks you’re noticing that might need to be addressed or even memories you want to share with each other. This would also be a good place to keep owner’s manuals or instructions.
Moving forward with a co-owned cabin
For folks who can’t afford their own cabin, co-ownership can be a great option. But the bottom line remains that compromise and good communication will be necessary to a successful and long-lasting lakeside partnership.